Falling Knife

"Falling Knife" in the context of cryptocurrency refers to a rapidly declining asset price that appears to have no clear bottom, presenting a high risk of further losses for investors. It suggests that attempting to catch or buy into the asset while it is rapidly falling is extremely risky and akin to catching a falling knife - likely to result in financial harm.

Example:

Imagine a cryptocurrency that had been experiencing steady growth suddenly starts plummeting in value due to a significant negative news event, such as a security breach or regulatory crackdown. Investors observing this sharp decline may be tempted to buy in, hoping to capitalize on a potential bounce back. However, if the decline continues, they could end up losing a significant portion of their investment.

Case:

In 2018, Bitcoin experienced a sharp decline in value from its all-time high of nearly $20,000 to around $3,000 over the course of several months. During this period, many investors attempted to catch the falling price, believing it would rebound soon. However, Bitcoin continued to decline further, causing substantial losses for those who bought in too early. This scenario exemplifies the risk of trying to catch a falling knife in the volatile cryptocurrency market.