Everyone makes mistakes, but some can be more costly than others. For an avid crypto trader, a reckless and thoughtless move has resulted in a loss of five million euros in just one night. A small consolation: His impulsive actions at least made him aware of the phenomenon of “slippage” and the effects of low liquidity.
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Enthusiastic crypto trader
The trader in question, who could not be identified, bought a huge chunk of Dogwifhat (WIF), a Solana (SOL) memecoin that entered the industry in December, last Thursday.
Dogwifhat was in the spotlight on Thursday after the coin, which like Dogecoin (DOGE) and Shiba Inu (SHOB) is based on a Shiba Inu dog, shot up 50 percent in just 24 hours.
This gigantic spike may have been caused by American asset manager Franklin Templeton, who posted a remarkable news on the social media platform
With the cryptic message, traders rushed to the memecoin en masse. This also applies to the crypto fanatic mentioned above, where emotions most likely prevailed.
Millions lost with Solana Memecoin
To be precise, he bought for 9 million dollars to dogwifhat on three different decentralized exchanges. Blockchain data shows he made three transactions to make the major purchase: $6.25 million, $1.78 million, and nearly $900,000.
These large orders had caused considerable disruption in the market. With relatively low liquidity, large buy orders can have a significant impact on the demand side of the market and lead to a rapid rise in price.
In response to the large orders, prices rose explosively. As a result, the trader was forced to buy Dogwifhat for up to $3. Soon the price fell back to $0.15, almost to the level before the purchase. This resulted in a huge slippage loss of over $5.7 million for the trader.
The concept of slippage, which refers to the difference between the expected price of a trade and the final execution price, is common on decentralized exchanges, where liquidity can sometimes be more limited.
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Lessons for the Crypto Trader
This costly mistake highlights the importance of sound risk management. Furthermore, it shows the importance of a deep understanding of the market, including liquidity.
It could also be that the trader was so emotional that he could no longer think clearly. It highlights the importance of remaining calm and acting rationally at all times, even when the market takes unexpected turns.
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