Recently, cryptocurrencies like $PIPPIN, $JELLYJELLY, and $BEAT have seen dramatic surges of several times their value, leaving many investors holding short positions in a dilemma: should they stubbornly wait for a pullback or close their positions and switch to long to take advantage of the trend? This scenario highlights the topic of 'shorting easily turning into losses' once again. However, we need to clarify that short selling itself is not a monstrous threat — it is an important part of the market pricing mechanism that can curb bubbles and balance valuations. What truly puts retail investors in a passive position is the transformation of short selling into a 'one-sided obsession,' which leads to a loss of objective judgment and critical thinking. Today, we will analyze the deeper logic behind this phenomenon.
1. The asymmetry of risk and return: the mathematical essence most easily overlooked by retail investors.
Many people only see the superficial differences between going long, which has "unlimited returns," and going short, which has "capped returns," without understanding the risk transmission logic behind this difference. Theoretically, when going long, if a cryptocurrency rises from 1 yuan to 100 yuan, it can yield a 100-fold return, whereas going short only allows for a 100% return if it falls from 100 yuan to 0 yuan. This difference in odds indeed gives going long an advantage in the expected value (EV) model. However, more fatal than the capped returns is the "unlimited risk exposure" of going short.
When going long, the maximum loss for investors is the initial principal — even if the cryptocurrency goes to zero, the loss is capped at 100%. However, short selling relies on a margin trading mechanism, and when the market goes against expectations, the losses can be amplified infinitely as prices rise. Taking a speculative coin as an example, if short selling occurs at a price of 100 yuan, when the cryptocurrency rises to 200 yuan, the loss is already 100%; if it rises to 500 yuan, the loss will reach 400%, far exceeding the initial margin size, ultimately facing forced liquidation. This asymmetry of "limited returns, unlimited risks" is inherently unfriendly to retail investors, and most people often only calculate potential gains before entering, lacking awareness of risk exposure.
2. The dimension differences in value judgment: denial is easy, verification is difficult, and obsession can lead to misjudgment.
The core divergence between going long and going short is not a simple opposition of "affirmation" and "denial," but a stark difference in the dimensions and difficulties of value judgment. The essence of going long is "value verification" — whether based on project fundamentals (technical architecture, team capability, application scenarios) or market signals (capital inflow, emotional warming, positive news implementation), its logical chain is "discovering clues - tracking verification - confirming value." In this process, investors actively collect positive evidence, forming a relatively complete cognitive loop; even if judgment errors occur, they can correct their views through subsequent signals.
Going short is "value falsification," and its logical chain is "discovering doubts - inferring bubbles - denying value." However, the complexity of financial markets lies in the fact that "value" itself is multifaceted — what you see as a "scam coin" may have social attributes or speculative value in another group; what you consider "fundamentals deteriorating" may be completely overshadowed by short-term capital speculation. More critically, human cognition tends to lean toward "confirmation bias"; once short sellers form the assumption that "this coin will definitely decline," they actively filter out negative information and ignore positive signals. When unexpected market fluctuations occur (such as a big influencer speaking out or sudden capital attacks), this judgment based on "denial obsession" can easily collapse, leading to panic liquidations.
It is worth noting that professional institutions' short selling often relies on deep research (such as empirical evidence of financial fraud or technical defect verification), while retail investors' short selling mostly stems from the subjective assumption that "after too much gain, there must be a drop," lacking core falsification logic, fundamentally equating "emotional denial" with "value judgment."
3. The path bias of cognitive accumulation: going short easily falls into "cognitive inertia."
The core competitive advantage of trading is cognitive upgrading, while the roles of going long and going short in promoting cognitive accumulation are completely different. Going long forces investors to maintain a learning state — to find valuable targets, they need to study industry trends (such as the direction of blockchain technology development), compare project differences (such as public chain performance and token economic models), and track market cycles (such as characteristics of bull and bear phases and the rules of capital rotation). In this process, investors gradually build a capacity system of "industry cognition - project selection - risk control," and even if individual trades incur losses, the cognitive experience can be accumulated and reused.
Short selling easily breeds "cognitive inertia." The logical threshold seems lower — you only need to find something that appears to have a "bubble" — but if this judgment does not rely on deep research, it can fall into the trap of "denying based on feeling." Investors who rely on this simple logic for short selling will not actively seek to understand the value dimensions of a project, the logic of capital speculation, or the emotional patterns of the market, but instead will develop an obsessive belief that "all surges are bubbles." When structural opportunities arise in the market (such as the rise of new sectors or value re-evaluations driven by technological breakthroughs), this cognitive inertia will cause them to miss out continuously and even incur losses by repeatedly shorting, falling into a vicious cycle of "the more they lose, the narrower their cognitive understanding becomes."
4. The hidden traps of emotional management: the erosion of decision-making by denial thinking.
Trading is a game of emotions and rationality, and the negative impact of short selling thinking on emotions is often underestimated. The core emotion of long investors is "anticipation"; even with short-term pullbacks, as long as the cognitive logic is not broken, they can easily maintain patience — this "positive anticipation" encourages rational thinking, such as analyzing whether the pullback is a shakeout or a trend reversal, and whether to add to positions or cut losses.
The core emotion of short sellers is "anxiety." On one hand, the capped returns determine the psychological expectation of "quick profits"; once the market stagnates or rises slightly, they become irritable due to "time cost"; on the other hand, the characteristic of unlimited risk makes them extremely sensitive to any positive signals, easily interpreting normal fluctuations as "trend reversals." Long-term exposure to this "denial-anxiety-panic" emotional loop causes investors to gradually lose their ability to make objective judgments, either frequently cutting losses during small fluctuations or being passively liquidated during large surges, ultimately forming a vicious cycle of "the more you fear losing, the more you lose."
Conclusion: it's not about rejecting short selling but rejecting "obsessive short selling."
We do not deny the value of short selling — in mature markets, the precise strikes of short-selling institutions can often burst major bubbles and protect the interests of ordinary investors. However, for retail investors, the key issue is not "can you short?" but "do you have the ability to short rationally?"
True trading experts are never bound by "long and short labels" but focus on the "essence of the market": going long when the target value is severely underestimated and going short when the value is severely overestimated, with all decisions based on verifiable logic. For most retail investors, rather than blindly short selling under insufficient cognition, it is better to first cultivate the ability to go long — by researching projects and tracking the market to accumulate cognition and establish their own value judgment system. When your cognition is sufficient to cover the risks on both long and short sides, short selling will naturally become a rational trading tool, rather than a scythe that reaps your own losses.
The ultimate goal of trading has never been to "guess the direction correctly," but to "control risk with cognition." Only by breaking free from the obsession of "either long or short" can one truly escape the fate of being harvested.
