Crypto Trading and the Sunk Cost Fallacy
As someone involved in the financial markets for a long time, I get into lot of discussions with people about the nature of investing, speculating, and trading.
And I come across this type of argument a lot:
"You don't lose money until you sell."
Which is absolutely not true. This is why mark-to-market is a thing, and mark-to-book is bullshit.
This argument is a manifestation of the sunk cost fallacy, which says:
Reasoning that further investment is warranted on the fact that the resources already invested will be lost otherwise, not taking into consideration the overall losses involved in the further investment.
https://www.logicallyfallacious.com/tools/lp/Bo/LogicalFallacies/173/Sunk_Cost_Fallacy
The key thing to keep in mind when you are making a trade (for crypto, stocks, bonds, goats, doesn't matter) is that you are exchanging money for the title to something of value. After you trade the money for the good, the money is gone! The fact that the good has some sort of value is the only thing that you possess now.
If you walk through the sequence of events slowly, you can see this clearly.
Step 1: You have 1000 USD
Step 2: You exchange your 1000 USD for 0.1 BTC
Notice you now own 1000 less USD 0.1 more BTC. At this moment in time your 0.1 BTC is worth 1000 USD (neglecting transaction fees).
Step 3: Now let's say BTC declines from 10,000 USD/BTC to 5,000 USD/BTC. Your 0.1 BTC is still 0.1 BTC (Doge was right). But it's "worth" is now 500 USD.
You have lost money!
It doesn't matter whether you hodl or sell, at this moment in time your investment is worth less than you initially put in.
Especially in the case of crypto, these funds have pretty low transaction costs. So your decision to hold a loser is equivalent to buying in today at the current price.
Now that might be perfectly fine depending on what your expectations are. You might think this is a temporary dip and the moon shot is around the corner. And you could be right!
Just don't confuse yourself by saying, "Well, I bought in at $10k so now I need to hold until I get my money back." The market is what it is. Wishing for something different doesn't change anything.