Cryptocurrency trading - Bulls, bears, whales, pilot fish and just downright weird stuff (part 1 of
Last year, as thousands of others, I started trading cryptocurrency. Besides profit, there’s other reasons to do it: in my case, I am very interested in learning about how these new technologies are evolving, the implications they might have in our financial system and our lives. I must admit though, it’s possible to invest in crypto and not learn anything about the underlaying technologies since it’s possible to do it as you would play in a casino: “10,000 dollars on red, go baby!” , and just substitute the color for your favorite alt-coin. With that said, the area I find particularly interesting in the crypto space is human behavior. Anyone involved to some extent in cryptocurrency has most likely witnessed different variants of irrational and /or compulsive behavior, the creation of a new lexicon, the design of elaborate schemes to game the system and some just plain crazy stuff.
Below you’ll find a few observations ‘in the wild’, without attempting for this to be an exhaustive list nor trying to organize them with a framework:
From my very first days trading, it became clear to me that cryptocurrency trading has all the elements to be its own form of addiction. I found the following definition of addiction online: Addiction is a condition that results when a person ingests a substance (for example, alcohol, cocaine, nicotine) or engages in an activity (such as gambling, sex, shopping) that can be pleasurable but the continuation of which becomes compulsive and interferes with ordinary responsibilities and concerns, such as work, relationships, or health.
Well - the last part checks for cryptocurrency trading - it can be pleasurable (“I just made 150% return in 2 hours!”) , it can become impulsive (many exchanges make it really easy to do impulse crypto-currency purchases or trades right from your phone), and it can interfere with ordinary responsibilities (if you’ve ever been in a cryptocurrency trading group on whatsapp or telegram you’ll soon ask yourself “don’t these people have a job? … or sleep for that matter?")
Crypto-currency trading behaves pretty much like a high-tech online casino you carry around in your pocket - with the added bonus ‘ego boost’ that comes from feeling more sophisticated ‘investing’ than a person sitting in front of a slot machine and pulling down the lever. But at the end of the day, most people in the cryptocurrency are not ‘investing’ , they are gambling - and gambling can stimulate the brain's reward system much like drugs or alcohol can, leading to addiction
BEHAVING LIKE ANIMALS (pilot fish, in most cases)
In finance markets parlance, it’s well known that we talk about a ‘bull’ market when the value of investments are going up, and we talk a ‘bear’ market when it’s slowing down. In the cryptocurrency trading world the most famous animal is the ‘whale’ - a term used to refer to large investors that can literally make a coin’s price shoot up and then fall precipitously with a ‘pump and dump’. This is basically an orchestrated effort to buy a lot of a cryptocurrency in a short period of time (a few minutes / hours), which causes its price to shoot up due to the apparent demand for it. As the whale is generating the pump phase, the ‘pilot fish’ come in (the fish that follow a whale’s movements): thousands of other traders see the currency price going up, and they start buying it -which makes the price go even higher. Later (minutes, hours or a few days laters) the whales that caused the price spike all sell simultaneously at a much higher price than they bought - and this causes the price of the currency to drop. The whales make a big win, some pilot fish end up selling on time and make some profit, and a large amount of traders end up with the short end of the stick, losing what they had invested. The whales then rinse and repeat.
To make matters more interesting, there are whales - and then there are BIG whales. Think of that scene in Jurassic World in which a mosasaurus springs out of the water and eats a white shark in one bite.
There's whale investors... and then there's institutional money
These larger whales are those that manage institutional money and can impact the entire cryptocurrency market , vs only a few alt-coins for a quick profit. Earlier this year we saw some precipitous falls in the value of bitcoin, and it dragged most alt-currencies with it. Interestingly enough, the price drops seemed to be in alignment with the expiration of some of the first rounds of bitcoin futures. Yes, just in case crypto’ volatility (i.e. losing 100 billion of market value in 24 hours) wasn’t enough of a fun ride, now there’s trading for financial options on crypto’s price.
In the second part of this post I'll share with you the Dialect, Alliances and Downright Crazy stuff I've experienced while cryptocurrency trading.