Throughout the past week, we’ve observed accounts of significant bitcoin liquidations.
For those who are not acquainted with the concept of “liquidation” in finance, it indicates a scenario where a trader must terminate a leveraged position due to the depletion of margin.
In simple terms, it means that an individual borrows funds to speculate on the future price of bitcoin and they misjudge it, leading to a loss of any funds they committed to the trade (or even more, in certain situations).
When engaging in leveraged bitcoin trading, I keep in mind the initial remark from the following post:
A fool and his leveraged #bitcoin are soon parted.
To quote one of my mentors, “up 6% today, down 100% tomorrow.”—@aantonop
To echo another, “#notyourkeysnotyourcoins”
Exercise caution out there. @michaeljburry is correct—there’s a substantial amount of concealed leverage in #bitcoin. Buyer beware.
— Caitlin Long 🔑⚡️🟠 (@CaitlinLong_) June 20, 2021
Thus, the primary lesson in bitcoin investment is to avoid using leverage. (This is not financial counsel.)
Even though bitcoin currently holds around a $2 trillion market capitalization, it remains a highly unstable asset. Its value considerably shifts in reaction to news events. Consequently, it is far safer to simply purchase some bitcoin on the spot market and retain it for the long term (at least four years).
Moreover, when and if you decide to acquire bitcoin on the spot market, consider maintaining a lower exposure to bitcoin rather than an excessive one (these concepts are subjective; interpret as you wish).
If you have excessive exposure to bitcoin, or if you’re new to the market and have invested all your resources in bitcoin, the likelihood of panic selling increases if its value drops in the short term.
How can you determine if you’re overly exposed? You might start losing sleep over it and/or investing emotional energy in wishing for bitcoin’s price to rise (up only).
I’m sharing this based on personal experience. I had too much exposure to bitcoin in 2021-2022, and I often felt unwell because of it. Once I reduced my exposure, I felt relieved and was able to think more clearly.
Establish an investment limit that you find comfortable, and, once more, aim to hold onto it for the long term.
Trying to get rich quickly through bitcoin is virtually a guaranteed method for getting yourself rekt.
Proceed with caution, and heed the sound advice from renowned Bitcoiner Matt Odell: stay humble, accumulate sats.
(The opposite of such wise advice would be: act irrationally, gamble on bitcoin recklessly.)
Exercise caution out there.
This article represents a Take. The opinions expressed are solely those of the author and do not necessarily represent the views of BTC Inc or Bitcoin Magazine.