Why Crypto Investors Buy High and Sell Low

by | Nov 17, 2022 | Blog, Videos

In this week’s video Casey examines a study of crypto investors and how they fall victim to buying high and selling low… the opposite of how you want to invest.

Cryptocurrencies are a new (unregulated and super risky) area of the market, but, the same old human tendencies are making it difficult for investors.

Tune in to hear how crypto investors are fairing in 2022’s market environment.

Show Notes

Do more people join crypto markets when the price of Bitcoin rises? – Tracy Alloway

Crypto trading and Bitcoin prices: evidence from a new database of retail adoption – BIS

Our Thoughts on Cryptocurrency for Retirement – Mullooly Asset Podcast

Why Crypto Investors Buy High and Sell Low – Full Transcript

Casey Mullooly: In episode 317, we talk about the boom and bust of cryptocurrencies.

Welcome back to the Mullooly Asset Show. I’m your host, Casey Mullooly, back with you for episode 317. The crypto world is ablaze here, in mid to late November 2022, as news has broke over the last week or so, that multiple exchanges, cryptocurrency exchanges, have had to file for bankruptcy, which has shaken investors confidence in the whole area, and it’s made it difficult for users, retail users, to get their actual dollars off of the platform.

It’s been a mess and hopefully you didn’t put any serious money into this area of the market. Any money that you put in, you have to be willing to lose, so hopefully you’ve stuck to that.

Tracy Alloway, who writes and hosts a podcast over at Bloomberg, shared a study done by the BIS, which is the Bank of International Settlement. They do research for all of the central banks around the world, and the study that Tracy linked to was looking at cryptocurrency app usage and the price of Bitcoin, to see if there was any correlation there at all. Lo and behold, there is. The study found that over 75% of retail crypto investors downloaded these crypto trading apps when the price of Bitcoin was over $20,000. That’s kind of been a line in the sand, for a lot of crypto and Bitcoin traders.

When it’s over $20,000, that’s when things are good, and when it’s under, that’s when things are bad. It’s under $20,000 right now. 75% of people who use the app are downloading it when it is over $20,000, so when prices are high, it attracts more attention and more attention means more dollars. Also, the study found that, assuming an initial investment of a $100 per user, 81% of retail crypto investors have lost money on their initial investment. 81% of retail crypto traders have lost money on their initial investment. Wow.

This has left pretty much all of the gains for a very small amount of these crypto investors. It’s this idea that price drives sentiment, and this isn’t a new one for markets but it’s a new area of the market. But the same rules apply that it’s really hard to buy low and sell high because it goes against human nature.

When prices go higher, more people want in. That’s just the way that humans naturally behave, but it’s a really bad way to make money. When crypto prices are going down, the bullish case gets even harder to make, because the underlying technology is still so new and still unregulated and there isn’t a whole lot of real world usage for it. When prices go down, it kind of goes the other way or kind of implodes on itself there.

At least when stocks and bonds the prices are going down, at least they get attractive at some point because they’re based on corporations and governments that have future cash flows. The whole crypto bullish case is, really, you buy it and you try and sell it to someone at a higher price down the road. As we’ve talked about before, that is not a good way to make money.

Don’t fall victim to the boom and busts of the crypto market or the market in general. If you’re looking to make a quick buck, you have to be willing to lose a quick buck, and maybe you should just systematically invest instead. That’s the message for episode 317 of the Mullooly Asset Show. Thanks, as always, for tuning in. We’ll be back with you next week.

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