Anonymous Ethereum Investor Lost Over $2 Million Trading Ether (ETH) as of September 9, 2022 show chain data.
Buying Ethereum High, Selling Low
Spotted according to on-chain monitoring resource Lookonchain, the “dumb money” trader spent $12.5 million in stablecoins to buy 7,135 ETH after it rose 10% to $1,790 in September 2022. However, the subsequent correction forced the trader to sell the entire stash for $10.51 million.
As a result, the trader lost almost 1.75 million dollars. Interestingly, waiting and selling at today’s price would result in a smaller loss of $1.14 million.
1/ Please don’t blindly follow the buying trend $ETH after the price goes up for a period of time and don’t panic, sell after the price goes down.
Stupid money to lose over 2 million $ USDC in half a year he will tell you how dangerous this behavior is.
— Lookonchain (@lookonchain) February 22, 2023
The investor’s trades reappeared in February when the price of ETH rose by around 10%. The data shows that $7.65 million in ETH was acquired on February 16, only to be sold eight hours later as the price of ETH fell, resulting in a loss of another $324,000.
3 Ethereum Investing Lessons You Must Learn
Traders can use such examples to learn from the mistakes of others and reduce their investment risks using proven strategies. Let’s take a look at some of the most basic tools that can help cut losses.
Don’t rely on just one foundation
An investor first traded stablecoins for ETH on September 12, just three days before the long-awaited transition from proof-of-work (PoW) to proof-of-stake (PoS) via upgrade Merge.
However, the merger turned out to be a sell-the-news event.. So going extremely bullish on Ether based on one strong fundamental was a bad decision.
Additionally, relying on a single indicator, especially a widely anticipated event, is often a losing strategy, so traders should consider multiple factors before making a decision.
For example, one such metric was institutional flows. ether investment funds suffered $61.6 million worth of outflows in the week before the merger, according to CoinShares’ weekly report, suggesting the “smart money” was leaning into a bearish trend.
Hedging with a put option
Hedging options when trading Ether allows investors to buy option contracts against their current open positions. Therefore, investors could mitigate the risk by opening a put option against their bull spot.
A put option gives the holder the right, but not the obligation, to sell ETH at a predetermined price on or before a certain date. Therefore, if the spot price of Ether falls, the investor could sell the asset at a pre-agreed price, thus protecting himself from the loss of ETH value.
Don’t go all-in; check momentum
Don’t put all your eggs in one basket, no matter how much capital you can throw around.
Instead, entering the position in increments could be a safer strategy while keeping some funds on the sidelines. Thus, traders can buy ETH during a short-term or long-term bull run, but they can save some capital to buy during potential dips, relying on various technical indicators.
For example, momentum oscillators such as relative strength index (RSI) reveals whether Ether is oversold or overbought in certain time frames. So a long duration strategy when the RSI value is near or above 70 and making a lower high has a high chance of failure.
Related: A Beginner’s Guide to Cryptocurrency Trading Strategies
The Ethereum daily chart below shows two instances where the aforementioned investor bought ETH along with the RSI, creating a lower high.
Ultimately, traders’ mistakes can serve as opportunities to learn what works and what doesn’t for an investor. The main takeaway is that investors should enter the market with a specific plan based on their own analysis and risk appetite.
This article does not contain investment advice or recommendations. Every investment and trading step involves risk and readers should do their own research when making decisions.
