Crypto Chaos – Volatility, Liquidation and Mental Health

Cryptocurrency is known for its volatility, and this week proved to be no exception.  Bitcoin, which was already down approximately 75% from its 2021 highs, dropped an additional 25% in two days earlier this week to the lowest price investors have seen since November of 2020.  Many altcoins made far deeper corrections of 50% to 90%.  Unfortunately for many, the impact of crypto capitulations such as these will be felt far beyond financial loss as it may result in various relationship issues, mental health challenges, and ultimately suicide.

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Although cryptocurrency has always been known for its volatility, this week brought damage to the crypto industry that is deeply rooted, such as the erosion of confidence and mistrust that will be challenging to repair.  Earlier this week one of the world’s largest cryptocurrency exchanges known as FTX was shown to be insolvent after mismanaging billions of dollars of investor funds, and the crypto markets reacted swiftly.  To make matters worse, hundreds of millions of dollars were drained from the platform in a hack after the company filed for chapter 11 bankruptcy.

The fallout from the FTX debacle is likely far from over as the story continues to develop and as the contagion spreads to other crypto entities such as BlockFi and continues to affect company balance sheets and personal portfolios accordingly.  This event was the latest in a list of other nefarious crypto-related troubles that occurred recently including the fall of Terra Luna token, the bankruptcy of crypto lenders Celsius Network and Voyager Digital, and the liquidation of Three Arrows Capital (3AC) hedge fund to name a few.  These types of events are nothing new to the crypto market, and although the FTX damage is severe and ongoing, if crypto's brief history is any indication the market will likely survive, adapt, and go on; or it will all go to zero, who knows.

Cryptocurrency and Mental Health

Financial loss can have a significant and traumatic effect on individuals and their emotional wellbeing.  When an individual experiences a loss in their portfolio, whethere it be realized or unrealized, trading and investing can result in increased stress, anxiety, and depression among other mental health challenges.  A study of the 2008 stock market crash found evidence that large and sudden wealth loss resulted in an immediate impact in mental health.  Those with the greatest exposure to the stock market at the time who endured significant financial loss had a dramatic increase in depression and anti-depressant use.

More recently, there are many personal stories and testimonies of the impacts of trading cryptocurrency on mental health, including depression, constant worry, stress, sleepless nights, feelings of hopelessness or helplessness, binge eating or drinking, and substance abuse among other unhealthy thoughts and behaviors.  With cryptocurrency still in its infancy, research in this area is limited.  Nonetheless, conclusions can be drawn from studies done on past stock market crashes, gambling, and financial loss in general as well as anecdotally from those impacted by cryptocurrency losses as well as mental health professionals specializing in cryptocurrency who have received an influx of clients impacted by cryptocurrency loss or cryptocurrency addiction.

Beyond mental health issues that can arise from crypto losses, research also shows that financial loss stemming from such investments can result in suicidal thoughts, and ultimately suicide.  Some individuals may experience a sense of hopelessness and helplessness of recovery from their financial loss, resulting in unhealthy thoughts that can result in suicidal ideation and suicide.  For example, studies show that money stress can make people 20 times more likely to attempt suicide.  During the stock market crash of 2008, suicide rates increased by over 40% in males and over 100% in females as evidenced by a study done in South Korea, a country that was greatly impacted by the 2008 crash.

Studies have also shown that, while suicide has always been thought of to be associated with a mental health disorders such as depression, suicide has also been found to be associated with financial loss in lieu of a mental health issue.  In other words, anyone who experiences a sudden and significant loss in their crypto assets can be susceptible to suicidal thoughts and suicide, even without underlying mental health issues.

This was evidenced several months ago by the Terra Luna debacle with many individuals posting on Reddit and other online forums about suicidal thoughts for the first time, and similar posts are currently resurfacing as a result of recent events surrounding FTX and the subsequent crypto market capitulation.  Unfortunately this is not surprising to addiction experts, as gambling addictions have the highest rate of suicide compared to other addictions as a result of the coinciding financial loss.  This is not to say that all of those who will undergo suicidal thoughts or suicide resulting from crypto’s current downfall are addicted to trading cryptocurrency, the majority are probably not.  Rather, it speaks to the devastating impact that financial loss can have on mental health in general.

How To Cope With The Mental Health Impacts of Cryptocurrency Losses

When individuals lose substantial assets due to cryptocurrency trading they will often try to recoup their losses by continuing to trade.  If this is the case, hopefully they will learn from their errors and invest more cautiously in the future.  Others may cut their losses and exit the crypto market altogether.  Regardless of the financial decision that is made, it is important to learn to cope with the mental health impacts of cryptocurrency losses.

• Do not ignore your emotions: Trying to suppress the negative feelings associated with a cryptocurrency loss can end up doing more harm than good. Suppressed emotions continue to live inside of us and often resurface.  These suppressed emotions may be redirected onto other people or in activities that you perform, and bottling up emotions can result in increased agitation, anger and aggression.  Suppression can also cause or exacerbate mental health issues and can lead to alcohol and substance abuse.  While some may need to suppress emotions in the short-term, they should be processed in the long-term to move forward in a healthy way.

• Do not be impulsive: When confronted with financial challenges many individuals can become impulsive. Impulsive actions may mean taking on a risky financial position that may only make things worse or engaging in high risk or dangerous behaviors such as binge drinking.  It is never a good idea to take any significant action when emotions are heightened.  Allow time and space for emotions to settle, take a break, and do something to redirect your attention in the short-term such as speaking with a loved one.  Impulsivity may also mean taking your own life if you are experiencing suicidal thoughts.  If you are experiencing any suicidal ideation, call an emergency hotline immediately such as 988 in the United States.

• Assess the situation with a level head: When emotions have settled, assess your loss and overall financial situation. During a sudden and dramatic cryptocurrency loss individuals may revert to extreme ways of thinking and catastrophic thoughts, and may see the loss as worse than it actually is.  Oftentimes the situation is not as bad as you may have made it out to be in your mind.  Individuals are usually extremely emotionally attached to financial loss, so it is normal to experience heightened emotions as a result.  This is why it is important to take a step back and look at the overall picture of your finances.  If helpful, remind yourself that you can use your loss to offset taxes on capital gains and income taxes.  Furthermore, there are always ways out of financial loss, be it cutting back on expenses, finding ways to make additional income, or taking a personal loan to name a few.  Regardless of the severity of your situation, you will be ok.

• Self-Care: When stress, worry, sadness, hopelessness or other negative emotions are getting the best of you, it's easy to neglect basic needs that in turn can make the situation feel worse than it actually is. Be mindful to engage in self-care and make sure you're still getting adequate sleep, nutrition, movement, socialization, and other important needs.  Taking care of yourself mentally and physical will place you in a better position to take care of your financial situation.

• Meditate: Meditation is usually not the most obvious go-to when it comes to a significant loss in your cryptocurrency portfolio, but it is a highly effective tool in combatting the stress, worry, sadness and other negative emotions that can accompany a financial loss. This is especially true during the immediate aftermath of a liquidated position when you may be in a state of extreme panic or fear.  Meditation allows the mind to quiet, the body to relax, and to move into a peaceful mental state.  Meditation also allows for the mind to clear and to come out of it with a new and healthier perspective surrounding your financial situation.  There are various forms of meditation such as focusing on your breath, guided meditation, meditation using imagery, practicing a mantra, among many others.  The more often you practice meditation, the easier it will become and more useful it will be.

• Exercise: The more stressed someone is about a financial loss, the less time they spend on their physical health; but exercise can have great benefits on your mental health surrounding a cryptocurrency loss. Not only will exercise help you feel better mentally, but it will also occupy time that you might otherwise engage in destructive habits triggered by your financial loss such as overeating, binge drinking, or obsessing over your last trade or a future trade.

• Talk to a loved one: Experiencing an extreme and sudden financial loss can result in feelings of loneliness, and the mental health challenges that accompany a financial fallout can result in increased tendencies to isolate. While it may be challenging, it is important to talk to someone during such difficult times.  Opening up about your challenges with a trusted loved one may help you find relief, improve perspective surrounding the situation, and help you with support and guidance.  Even if you do not speak with a loved one about your cryptocurrency issues specifically, socializing in general has been found to be connected with improved mental wellbeing, and can help to limit the internal or external distractions you are experiencing connected to your financial issues.

Moving Forward

After a significant cryptocurrency loss it is ultimately up to you if you decide if you choose to continue trading, take a break from trading, or exit the crypto market completely.  It is suggested that if you are experiencing significant mental health distress you reach out to a mental health professional.  However, if you choose to continue to trade, remind yourself that the crypto market always has been and likely will continue to be extremely volatile and unpredictable.  Furthermore, here are some strategies that are advised:

• Don’t invest money that you don’t have or can’t afford to lose.
• Have a plan and rules that you don’t break and stick with it.
• Don’t invest in anything you don’t understand or believe in.
• Always do your own research and analysis.
• Learn from your mistakes.
• Consider your risk-to-reward ratio.
• Use tools such as stop-losses and take-profit levels.
• Engage in meditation and mindfulness to help curb reactiveness.
• Keep a trading journal and note your emotional state in conjunction with your trades, review it to see patterns and to learn lessons.
• Take breaks, not only from trading and observing price fluctuations, but also from analyzing charts, reading or watching financial news or social forums, and other engagements connected with financial markets.
• Find other healthy outlets such as reading, writing, getting out in nature, exercising, and spending time with loved ones.
• Be mindful and aware of any stress or mental health problems your behaviors are causing and speak with a trusted support person or mental health professional about any issues you are experiencing.

Seek Professional Help

After a financial loss, especially a sudden and severe one, it is not unusual to experience mental health challenges or revert to unhealthy coping strategies.  If your mental health issues are pervasive and persistent please seek out help from a mental health professional immediately, especially if you are experiencing suicidal thoughts.  If you live in the United States, you can call the National Suicide Prevention Lifeline at 988.  If the issue is not acute, you can take time to do research and find a therapist specializing in cryptocurrency or other such mental health professional knowledgeable in behavioral finance.

If this article was useful to you, you may also enjoy reading:

The Ultimate Guide to Day Trading Addiction and Recovery

Bitcoin Addiction – 11 Reasons Why Cryptocurrency Trading Can Be Highly Addictive

Why These Next Few Months Could Be Catastrophic For Individuals Addicted To Cryptocurrency

How To Support a Loved One With a Cryptocurrency Addiction

Beyond Mere Financial Loss – Consequences of Day Trading Can Go Well Beyond Your Wallet

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