Why Most People Lose Money in Crypto (And How You Can Avoid It)

Understanding Asymmetric Risk

Let's start by breaking down this term, "Asymmetric Risk".

You've probably seen an old-fashioned balance scale before, right?

You know, the kind with two trays, one on either side.

Picture one side loaded up with a stack of heavy books, and the other side with just a single feather.

That's not balanced, is it?

That's what we mean when we say "asymmetric" - it's not even.

In investing, the word "risk" usually means a chance that you might lose money.

But not all risks are the same.

Here's an example: say you have two choices.

In the first one, you have a chance to either win $10 or lose $10.

In the second, you could possibly win $100 but only risk losing $10.

The second choice is what we mean by "asymmetric risk" - the potential gain is way bigger than the potential loss.

It's easy to see that the second choice seems a lot better.

That's why understanding asymmetric risk is so important, especially when it comes to cryptocurrencies.

Good Asymmetric Risk

• asking someone on a first date

• investing in a startup

• launching a company, podcast, book, or video

• attending a social event

• buying Bitcoin during a bear market

Bad Asymmetric Risk

• gambling

• high interest debt

• over-leveraged trading

• failing to diversify

• buying things at their all-time high

Cryptocurrencies like Bitcoin can change in value really fast and by a lot.

This means you can make a big profit, but you could also face big losses.

So, how do you use asymmetric risk to your advantage?

It's all about timing.

Think about making popcorn on a stove.

You don't just randomly start popping the kernels.

You wait for the pan to heat up just right.

The same goes for investing.

You don't want to jump in when everybody else is buying and prices are high.

You want to buy when prices are low, and then sell when they're high.

In other words, buy low, sell high.

In the world of cryptocurrencies, this might mean buying more Bitcoin when prices drop.

Then, when prices go up, you've got a whole lot of valuable Bitcoin that you bought for cheap.

That's how you make the most of asymmetric risk and get the most out of your cryptocurrency investments.

So, the next time you're thinking about investing, remember the balance scale and popcorn analogy.

Understanding asymmetric risk can help you make smarter decisions and make your money work harder for you.

The Four-Year Cycles of Bitcoin

In the world of Bitcoin, there's an intriguing pattern, much like a rhythmic dance that repeats every four years.

This rhythm, the heartbeat of Bitcoin, is its four-year cycle.

And within this cycle, there are different phases, each with its own tale to tell.

Year One - The Halving: Our story begins with an event known as the 'halving'. This is when the reward for mining Bitcoin is cut in half, and it happens approximately every four years.

This sudden decrease in new Bitcoin supply sets the stage for the cycle. As fewer Bitcoins enter the market, assuming demand stays the same or grows, a price increase is often the result.

Year Two - The Bull Run: Fueled by the halving, the second year generally ushers in a 'bull market' - a period when prices rise, optimism reigns, and the market teems with buyers.

Bitcoin's price often reaches new heights during this phase, driven by heightened demand and limited supply. This is the exciting, thrill-ride part of the roller coaster.

Year Three - The Cool Down: After the exhilarating bull run, the third year often marks the beginning of a 'bear market', a period when prices fall and pessimism pervades.

This phase can feel a lot like the roller coaster coming down from its peak, bringing with it a sense of normalcy as prices stabilize and the market cools off.

Year Four - The Accumulation: In the fourth year, the dust settles. Prices generally flatten out or even dip, and the pace of the market slows down. It's during this time that savvy investors accumulate Bitcoin.

This phase of the cycle represents the calm before the storm, as the market prepares for the next halving event and the cycle starts anew.

The next halving is set to occur in March 2024, putting us in the Year Four - Accumulation Phase now.

Remember, while this pattern has held in the past, it's important to understand that markets are influenced by a myriad of factors and past performance does not guarantee future results.

But understanding these cycles can provide valuable context and guide your approach to investing in Bitcoin.

The Halving Phenomenon - A Closer Look

If you're familiar with Bitcoin, you might have heard of the 'halving' event.

Let's take a deeper look at it and understand why it's so important.

Bitcoin started in 2009, and like precious metals such as gold, there's a limit to how much Bitcoin there is.

The total number of Bitcoin that will ever exist is 21 million.

But how do we get new Bitcoin?

That's where 'miners' come in.

Miners are people who use their computers to solve complex problems, and when they do, they add a 'block' of transactions to the Bitcoin 'blockchain'.

As a reward, they get some Bitcoin.

When Bitcoin first started, miners got 50 Bitcoin for each block they added.

But here's the thing: about every four years, this reward is cut in half.

This event is what we call the 'halving'.

So in the first halving in 2012, the reward dropped to 25 Bitcoin.

It has kept dropping since then, and right now, the reward is just 6.25 Bitcoin.

So why is this halving thing important?

1. Scarcity: Just like gold or diamonds, the fact that there's a limit to how much Bitcoin there is makes it valuable. Because the halving cuts the reward, the rate at which new Bitcoin is made slows down.

This means that the last Bitcoin won't be made until around the year 2140, even though most of the 21 million Bitcoin are already out there. This scarcity is a big part of what makes Bitcoin appealing.

2. Inflation Control: The rate at which new Bitcoin is made impacts Bitcoin's inflation rate. With each halving, this inflation rate is cut in half.

Unlike with money made by governments (like dollars or euros), this rate can't be easily changed. This makes Bitcoin attractive to people who worry about things like governments printing too much money.

3. Mining Changes: When the reward for mining is cut in half, it can become less profitable for miners, especially if the cost of electricity to run their computers goes up.

This could lead to fewer miners, which could impact how secure the Bitcoin network is. But so far, the price of Bitcoin has always gone up significantly after each halving, which makes up for the smaller reward.

4. Market Excitement: Each time a halving is about to happen, people get excited and buy more Bitcoin. This often leads to the price going up. But remember, just because this has happened before doesn't mean it will always happen.

In short, the halving is a key part of how Bitcoin works. It helps control inflation, impacts mining, and gets people excited. It's a pretty big deal if you're into Bitcoin, so it's good to understand it!

Timing the Market: When to Buy and When to Sell

In the world of investing, timing is everything, particularly when it comes to volatile markets such as Bitcoin.

It might seem like a good idea to buy Bitcoin when its price is soaring, but the smartest strategy is often the opposite: buy during the bear market, especially before a Bitcoin 'halving'.

Here's why: A bear market is when prices are falling, and investors are generally feeling pessimistic.

However, in a bear market, Bitcoin prices are typically at their lowest, allowing you to buy Bitcoin at a cheaper price.

Consider this: The 'halving' in the Bitcoin world occurs every four years, slashing the mining reward by half.

As new Bitcoin trickles into the market at a slower pace, even steady demand nudges the prices upward.

This scarcity sparks the exciting 'bull market,' a time of rapid price ascension.

Therefore, buying Bitcoin during the bear market and before the halving can provide excellent opportunities for investors to take advantage of asymmetric risk.

With asymmetric risk, the potential for gain is significantly greater than the potential for loss.

When you buy Bitcoin at its low point, there's minimal room for it to fall further.

This limits your potential loss (downside risk).

However, there's significant room for it to rise, providing a large potential gain (upside risk).

This is the essence of asymmetric risk, and why it can be so beneficial.

In contrast, buying Bitcoin when its price is already skyrocketing (like during a bull market) often exposes you to bad asymmetric risk.

There is a much smaller upside, since the price is already high, but a larger downside.

If the price falls from that high point, you could experience a significant loss.

So remember, when it comes to investing in Bitcoin, the mantra "buy low, sell high" could not be more important.

With a bit of patience and a keen eye on the market trends, you could make the most of Bitcoin's four-year cycle and asymmetric risk.

The Dark Side of Crypto: Risks and Losses

Like any investment, cryptocurrencies carry inherent risks, and it's vital to recognize them.

A sobering fact is that many people lose money in crypto, and the reasons for these losses are often similar.

The first pitfall is succumbing to FOMO, or the Fear Of Missing Out.

When people see Bitcoin or other cryptos skyrocketing in value, they often rush to buy in, fearing they're missing the chance to make easy money.

Unfortunately, this strategy often results in buying at peak prices (During Year Two - The Bull Run), and when the inevitable market correction occurs, these latecomers can suffer substantial losses.

Secondly, a lack of research is another common mistake.

The crypto world is complex, and each coin has its unique aspects.

Without understanding the fundamentals of the crypto you're investing in, you're essentially gambling, not investing.

Make sure you comprehend the technology behind the coin, its use case, and the team behind it before making any investment decisions.

Finally, the crypto market is still somewhat unregulated, which leads to occasional 'rug pulls'.

This term refers to when the developers or early investors of a coin dump their holdings, causing the coin's value to plummet and leaving later investors with substantial losses.

Understanding these risks underscores the importance of careful research, judicious decision-making, and never investing more than you can afford to lose.

Introducing Your Essential Crypto Compass

We've just discussed the darker side of crypto and the reasons why many people stumble and lose money.

It's no secret that the world of cryptocurrencies is not without its perils.

FOMO, lack of comprehensive research, and the risk of 'rug pulls' can make navigating this universe pretty daunting.

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A way to transform these pitfalls into stepping stones towards crypto proficiency?

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So gear up, folks!

The perfect moment to embrace this asymmetric risk, prepare for the next Bitcoin halving, and potentially unlock life-changing gains is now.

Can't wait to share more with you all.

Stay curious,

Addie LaMarr