Cryptocurrency markets are experiencing sharp volatility, leading to billions in liquidations and significant psychological strain on traders. The 24/7 nature of these markets exacerbates issues like anxiety, sleep deprivation, and addiction-like behaviors. Experts emphasize risk management and therapeutic tools to mitigate the emotional toll.
Crypto markets have recently entered a phase of intense volatility, with over $5 billion in leveraged positions liquidated in the past week alone. Billion-dollar liquidation events have occurred almost daily, including a $47.87 million BTC-USDT order wiped out on November 4 on the OKX exchange.
This nonstop trading environment, unlike traditional stock markets that close daily, imposes a heavy psychological burden. A scoping review published this year in the Journal of Primary Care & Community Health examined 13 studies involving 11,177 traders from multiple countries. It identified prevalent issues such as anxiety, addiction-like behaviors, and sleep deprivation. Traders often wake at night to monitor prices or use substances to stay alert across time zones. According to a study in Addictive Behaviors, they check prices an average of 14.5 times per day and spend 2.3 hours daily on crypto activities, with 32.8% showing compulsive patterns that disrupt work, relationships, and sleep.
"The ongoing nature of crypto markets, unlike traditional stock markets, prevents traders from taking necessary breaks, further increasing the risk of burnout," the researchers noted.
U.S. Federal Reserve data shows 18 million Americans engaged with cryptocurrency in the past year. The typical trader is 38 years old, with 67% under 45, 71% holding a bachelor's degree or higher, and an average income exceeding $110,000. Men are three times more likely to trade than women.
Identity fusion, where personal identity merges with financial holdings, heightens emotional impacts in crypto communities. Social media platforms like X, Discord, Reddit, and Telegram amplify sentiments, fostering fear of missing out (FOMO) and impulsive decisions, as reflected in the Fear and Greed Index.
To cope, traders are turning to cognitive behavioral therapy (CBT) to curb impulsive thoughts and dialectical behavior therapy (DBT) with techniques like the "STOPP" skill: Stop, Take a step back, Observe, Proceed mindfully. Financial therapists address money-related compulsions, while trading journals track emotional triggers. Some set fixed checking times or automate trades.
Annabelle Huang, CEO of Altius, advises: “The best way to deal with volatility is to implement strict risk management practices. You need a clear trading plan and you need to follow through with it. If you can't sleep, it means you have too big of a position—reduce it and avoid using leverage in volatile markets.”
Elliot Han, chief investment officer at C1 Fund, stresses: “Emotional discipline requires structure. Set your rules during calm periods, not when the screen is flashing red. Position sizes should be small enough that you can sleep at night. Volatility isn’t a surprise — it’s the price of admission.”
Bill Barhydt, founder of Abra, adds: “Market volatility can be absorbed over any 10-year time horizon. If a ten-year horizon feels too long, then allocating a higher percentage to lower-volatility assets may be prudent to avoid significant stress.”
Mitchell DiRaimondo, managing partner at SteelWave, notes: “The traders who survive set rules and size positions so a drawdown doesn’t touch their psychology. They automate what can be automated and let data take the first punch so emotion doesn’t have to. The best psychological tool is a real process — if your plan relies on willpower, you will lose.”
Over the past decade, crypto has seen four boom-and-bust cycles, including three crashes exceeding 80%. Success hinges on discipline, boundaries, and self-awareness in this unrelenting market.