Crypto Crash: Price Drops Don’t Mean a Loss Until You Sell

A decline in cryptocurrency prices does not automatically mean that an investor has lost their money. A real loss occurs only when cryptocurrencies are sold at a lower price than their purchase value. As long as the cryptocurrencies are held, it is only a temporary — unrealized — decline in the value of the portfolio, which may turn into a profit again in the future.

Cryptocurrencies are among the most dynamic assets in financial markets. Their prices can change rapidly and significantly, which can be challenging for investors, especially during market downturns. It is precisely during these periods that the feeling often arises that an investment is “disappearing.” In reality, however, this is a natural part of market cycles.

Why do cryptocurrencies fluctuate so much?

Volatility refers to the degree to which the price of an asset changes over time. In the case of cryptocurrencies, this level is higher than for traditional investments such as stocks or bonds. This is due to several factors that together create an environment of rapid and sometimes unpredictable price movements.

The crypto market is still relatively small compared to global equity or bond markets. This means that even smaller buying or selling volumes can have a significant impact on prices. At the same time, it is a market that reacts very quickly to news, geopolitical events, regulations, or changes in monetary policy.

Another factor is the market structure itself. Altcoins—meaning all cryptocurrencies other than Bitcoin—often have lower liquidity and smaller market capitalizations, which causes them to decline more sharply during periods of uncertainty. The market is also cyclical, with periods of rapid growth followed by corrections and phases of stagnation.

What does an unrealized loss mean in cryptocurrencies?

An unrealized loss occurs when the value of an investment declines, but the investor continues to hold the cryptocurrencies. It is therefore only a “paper” loss, which may change if the market recovers in the future.

In contrast, a realized loss occurs only when cryptocurrencies are sold at a lower price than their purchase price. Only then does a temporary decline turn into an actual financial loss.

Is high market oscillation a reason for panic and selling?

Market oscillation (trending) is a natural phenomenon. Whether it concerns stocks, forex, bonds, or crypto markets, periods of decline and growth are an inseparable part of the development of every financial asset. This phenomenon occurs on a short-term (1 – 6 months), medium-term (6 months to 1 year), as well as long-term (1 – 5 years) level. Successful trader Larry Williams described this phenomenon as follows: “Markets move like a drunken sailor. Even though he staggers from one side to the other, he eventually reaches his destination.”

The reason why markets constantly oscillate is very simple. What we see as a chart is in reality a constant battle between buying and selling market participants, or in other words, a battle between bulls and bears. Sometimes bulls dominate and the market rises, while at other times bears dominate and the market declines. However, sometimes neither side wins and the market moves sideways (chop).

You may be surprised, but market movement is largely influenced by the emotions of traders/market participants. This phenomenon occurs mainly after the release of important information, during panic selling, or during a sharp increase in the price of an asset (FOMO – fear of missing out). These emotional purchases/sales usually do not last long, and after some time the price of the asset stabilizes. Therefore, during a sharp sell-off, the price of the asset rebounds upward and vice versa, during a sharp purchase, the price drops. This phenomenon is professionally called a “retracement”.

In the case of crypto markets, it is necessary to realize that the price is highly volatile compared to other financial markets and the long-term trend has a strong cyclical character. In the case of the price of Bitcoin, extreme movements are a natural part of the market. During one cycle, the price may decline by approximately 80% from its peak and subsequently rise by more than 500%. Based on historical data, one Bitcoin cycle lasts approximately 4 years.

After explaining Bitcoin volatility, we can ask the following question: What about other cryptocurrencies? The truth is that Bitcoin largely determines the main trend and other cryptocurrencies follow it. Moreover, the volatility of altcoins is on average even higher than the volatility of Bitcoin. Therefore, it is quite natural that the price of such an asset may oscillate by tens of percent during a single day. However, this should not be a reason for panic. It is a natural phenomenon that is nothing unusual in the cryptocurrency market.

Trader’s mindset:

Even though we already understand the reasons behind market movements and the fact that a decline does not necessarily mean a long-term loss, when looking at the markets every day we may succumb to emotions. However, it is important to maintain perspective and trust your long-term investment strategy. It is precisely during periods when markets reach new lows that attractive buying opportunities may arise, which in the long term can bring the best financial appreciation.

First half of 2025: a practical example of market behavior

The first half of 2025 was one of the most challenging periods for the crypto market in recent years. A combination of geopolitical conflicts, persistent inflation, and uncertainty in central banks’ monetary policies led investors to reduce risk and shift capital toward more conservative assets.

Altcoins were affected the most, experiencing significant declines. Bitcoin behaved more steadily in comparison and confirmed its position as the dominant asset in the market.

Performance of selected Fumbi products for the period 1 January – 30 June 2025:

• Fumbi Index Portfolio: –9.52%
• Bitcoin and Gold: +5.31%
• Staking Portfolio: –52.7%
  

(Source: Fumbi Research. Performance figures are in EUR and do not include fees.)

These figures clearly demonstrate that different types of portfolios respond differently to the same market conditions and that diversification plays a key role.

TAKE ADVANTAGE OF CRYPTO’S POTENTIAL

When does an investor actually incur a loss?

An investor incurs a loss only when they decide to sell cryptocurrencies at a time when their price is lower than the purchase price. A decline in the portfolio’s value alone does not mean that the money has been lost.

Illustrative example

If an investment of €1,000 drops by 50 %, the value of the portfolio decreases to €500.
As long as the investment is not sold, this represents only an unrealized decline.

If the market subsequently rises by 100 %, the value returns to the original €1,000.

Why selling during a downturn usually worsens results

During market downturns, investors naturally tend to act emotionally. Fear of loss often leads to quick selling in an attempt to “save at least something.” However, such decisions often lock in losses and cause investors to miss out on the market’s subsequent recovery.

How to behave during market downturns

Long-term proven approaches include:

• maintaining a long-term investment horizon,
  
• investing regularly regardless of market movements,
  
• rebalancing the portfolio by adjusting the weights of individual assets,
  
• cautious buying during market corrections.

How Fumbi products support these principles

Fumbi designs its products so that investors do not have to deal with daily market fluctuations.

• The Fumbi Index Portfolio is diversified and rebalanced on a daily basis.
  

• Bitcoin and Gold combines growth potential with an element of stability.

TAKE ADVANTAGE OF CRYPTO’S POTENTIAL

Frequently Asked Questions

Summary

• A price decline does not automatically mean a loss.
  
• A loss occurs only when selling.
  
• Volatility is natural.
  
• A long-term approach reduces risk.
  
• Diversification and rebalancing help.
  

During cryptocurrency downturns, you are not at a loss — as long as you do not sell.

TAKE ADVANTAGE OF CRYPTO’S POTENTIAL