Why Most Small Investors Are Sheep and Usually End Up Losing Everything

If you decide to invest in cryptocurrencies, you should be aware from the outset that as a small investor, you will likely end up with losses. Some sooner, some later. Here, I will explain why this is the case. There are many things to consider to minimize this risk. Only in this way can you avoid becoming fodder for the whales. In addition to luck, you need one thing in particular in the crypto market: experience. Every investor will pay tuition fees at the beginning. Often, a new investor will not even know what led to the loss of their capital invested in one or several cryptocurrencies. Sudden crashes and enormous price fluctuations are completely normal in the crypto market. You need strong nerves and must not get heart palpitations at every up and down. This leads to rash and, above all, overly hasty actions, which only make things worse. If you don’t have strong nerves, you might want to consider a quieter investment option. In any case, only invest money in this high-risk market that you can afford to lose. Some providers also offer test accounts with play money, which are good for testing.

What are whales? Whales are investors with large sums at their disposal, able to manipulate the market or cause noticeable changes. Therefore, it is important to be able to read charts. Obviously, only a fraction can be explained here. Before anyone makes significant investments, they should thoroughly familiarize themselves with the whole subject.

There is also a lot of speculation in chart analysis. You must consider not only the current period but also the past. Those who want to make investments should prepare as much as possible. There are books, videos, articles on the internet, forums with experience, etc. Additionally, there are automatic sales at a certain threshold. If you have larger sums and are close to a specific price mark, you might want to wait and not make an investment. This investment could trigger an automatic sale for many others. This sale would then partially distribute our invested money to others. Thus, they can cash in their profits, partly thanks to our investment.

It is also important to constantly follow the news. News from around the world. Any new war, even just a rumor, can lead to immediate price drops. Those who do not quickly sell or exchange for more stable currencies will lose money rapidly. Fraud reports from the scene also lead to quick losses because the market reacts very sensitively. No wonder, people fear losing their money. Those who sell first suffer the least loss. If entire crypto exchanges go bankrupt, it often leads to a major crash on other exchanges as well. Losses in the high double-digit percentage range are not uncommon. Therefore, it is crucial to set price alerts. If the price drops by a certain percentage, you should be immediately informed. Ideally, also by phone, which you usually carry and which can wake you up at night with a special tone when such a message arrives. Just as you sell or switch to another currency after a certain percentage of profits, you must also limit the downside. Also, keep an eye on any sudden bans or restrictions on investment forms in any country. This has immediate effects. Interest rate decisions by the ECB and the US are very important. If interest rates favor specific investment forms, many immediately exit the crypto market and invest in safer options. But also the reverse. Many investors sell their cryptocurrencies, regardless of the state of their capital, a day or days before an interest rate decision, to preemptively avoid major price fluctuations. Many swap their crypto investments into coins that may not react as drastically. Some platforms offer their own coins or tokens that do not react as intensely and are then often used as a temporary shelter. Once the market calms down, investments are resumed. As in a casino, brokers almost always profit. For example, if you want to invest in a cryptocurrency, you must also consider the fees. Often, 1.5 percent of the amount is due at purchase, and then another 1.5 percent at sale. So, if you want to sell your investment after making a 5% net profit, you will likely need to sell at 8% to cover the fees and still end up with about 5%. Some platforms even deduct applicable taxes immediately upon sale, which can be very high. Therefore, you should also familiarize yourself with the taxes on cryptocurrencies in your country. These taxes can vary depending on the investment period. See speculation and long-term investments.

Why is it then that most small investors make losses while the whales end up with profits?

The answer is money. The more money you have, the easier it is to survive in the market. This does not mean that large investors cannot lose money. They too can potentially lose everything. Usually, money does not disappear but changes owners. When prices drop sharply, it doesn’t mean the money has vanished into thin air, but someone is selling off their shares.

Whales have the advantage of exiting investments earlier. For example: a small investor invests 200 $ in a cryptocurrency. At the same time, a whale invests 2 million $ in the same cryptocurrency. To simplify the example, let’s leave out the fees. Now, the price of the cryptocurrency increases by 10%. The small investor will say, my investment has increased by 20 $ to 220 $, i.e., by 10%. But 20 $ is not really much, so I won’t sell and will wait for higher profits. However, the one who invested 2 million $ has also experienced a 10% increase. He now has 200,000 $ more, while the small investor has only 20 $ more. The whale sells immediately, pocketing 200,000 $ in profit. If several whales do this, the price drops. The small investor’s 20 $ profit is gone, and they also suffer further losses as the price falls below the purchase value. All because whales with large assets realized and took their profits. This game repeats continuously. The whales thus dominate the market. The big ones live off the small ones. But not only that. They can also manipulate the market. They invest in a cryptocurrency that is currently gliding steadily. They have less fear of the price falling. It is considered stable. This large investment by the whale causes the price to rise rapidly. Other small investors see a price rise and also invest in the same currency. The price rises and rises. Then the game starts again. The whale sells their coins and exits with a large profit. With the money that small investors pumped into the market. They end up with losses again. Recognizing such activities requires experience and close market observation, i.e., chart analysis. Also, past trends of the same currency. If you can foresee that whales have invested, it might be better to wait. It is advantageous if a whale invests after you. In this case, you sell and pocket the profit. One should also distinguish between long-term and short-term investments. If you believe that a cryptocurrency will eventually be worth twenty times its value, regardless of the fluctuations until then, you can maintain your investment. Sometimes it is also profitable to invest in a currency, sell at a profit, and reinvest in the same currency when prices drop. This requires a lot of experience, nerves of steel, and, of course, luck.

And now, let’s take a look at a few chart examples. Once again, I want to point out that there are many chart analyses on the internet. These should also be looked at. This is only a minimal excerpt. Many experts have their own opinions on chart patterns. Whether you follow one of these is up to your own discretion. Cryptocurrencies are a high-risk investment. No matter how you behave, it can lead to a total loss. If you want to play it safe, then do not invest in cryptocurrencies.

In this chart (see the upward movement next to the arrow), you can theoretically observe active, normal interest from small investors. The price is slowly rising, others join in, and some sell small amounts.

Here, at the point of the red arrow, you can see a large sudden investment, most likely made by a single investor at this point. If you had previously acquired coins of this cryptocurrency, you might now be able to sell them at a profit. However, if you have not yet bought any coins of this cryptocurrency and such a large investment has been made, you can possibly conclude that this was a whale. Anyone who buys afterward might be feeding the whale. Because as soon as the price reaches a certain value, the whale will want to realize their profits. If we haven’t sold before then, we are very likely to incur a loss unless many, many others also invest in the same currency.

This example might show that someone waited until a certain price level was reached (see the dashed line). Then, they took their profit. If we had bought beforehand, this could have resulted in a loss for us.

Here, it appears that someone expects the price to stop rising and start falling instead. They might be selling either at a profit or a loss. However, this is most likely not an automatic sale, as the sale occurs slightly later. Although the price dropped to a certain level, as indicated by the dashed line, it was not sold immediately. A price alert might have notified the investor that the price had dropped to a specific level, prompting them to sell manually.

Finally, here’s an example of what it might look like when someone gradually invests larger sums to provoke a price increase. The price rises, other investors or small investors notice this and start investing as well. In the end, the whale could sell again with a significant profit if their plan works out.