
Bitcoin Traders Claim There’s Method to Their Madness - pdog
https://www.bloomberg.com/news/articles/2017-12-22/bitcoin-traders-claim-there-s-method-to-their-madness
======
ErikAugust
A good look into trader psych is Taleb's "Fooled by Randomness". All of this
predates Bitcoin, though I'd argue the open nature of cryptocurrency allows
for people with "extraordinarily active imaginations" (let's say) to
participate.

~~~
Zenbit_UX
There was a story on the top of HN recently about an Asian student who came to
live in the US and joined a hedge fund out of uni. He successfully predicted a
huge windfall for his fund - but for entirely the wrong reasons.

He put a lot of effort and research into his analysis of the market and was
sure he understood it well enough to bet big. He failed but luck saved him and
made a killing. His boss told him not to tell anyone, ever, and then promoted
him. His boss was also promoted for his 'talent' in managing a successful
team.

The student was self-aware enough to realize he failed spectacularly and left
the fund, but many aren't. Cognitive dissonance is rampant in the financial
sector and with bitcoin everyone feels like a stock-broker, it's a dangerous
game if you let your ego dictate your strategy.

~~~
ForHackernews
Link?

~~~
AndrewDucker
[https://americanaffairsjournal.org/2017/11/western-elite-
chi...](https://americanaffairsjournal.org/2017/11/western-elite-chinese-
perspective/)

~~~
hxta98596
Nice read, thanks.

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fullshark
Bitcoin has gone up 1547% in the last year. Unless you are heavily shorting
it, you are making money and it's not necessarily because of talent or great
strategy.

~~~
QAPereo
Until you successfully cash out, you’ve made nothing.

~~~
richardlblair
People don't realize how long it would take to liquidate a large sum of $$.

~~~
freeloop3
I've sold and transferred over $800k of cryptocurrencies to a US bank over the
course of 3 days. I could probably have done it faster if I tried. This was
through Gemini.

~~~
xapata
How much did the price change from the first coin you sold to the last?

~~~
gruez
take a look at any bitcoin price chart and draw out 3 days? if you're thinking
that 266k/day dump is going to move the market, it's not.

~~~
xapata
There's not a single market. The volume at a particular exchange matters. Note
the disparity Coinbase had recently.

~~~
gruez
i just checked 3 relatively legitimate bitcoin exchanges (kraken, gdax,
bitstamp). you could put a 300k sell order on any of them and have less than
0.5% of slippage, which is much less than regular trading volatility. plus if
you really wanted to, you could spread your trades among multiple exchanges
and execute them simultaneously for even lower slippage.

~~~
xapata
Not as disasterous as I thought, but still not great. Worse, when you most
want to sell is when others do too, so the liquidity may change.

How'd you confirm that estimate, by making a trade?

~~~
gruez
you don't. how most exchanges work is that when selling, you can place a limit
order (sell at that price or higher), or a market order (sell at whatever
price). if you want certainty, you use limit. if you want to make a trade
_now_ , you use market.

~~~
xapata
Ah, so that 0.5% was just a wild guess. Others have chimed in that they've
sold a bunch in one day and been fine, but ... there's always folks that want
to pump the price, so I'm not sure what to believe.

------
apo
"If the wind is strong enough, even turkeys can fly."

------
659087
Judging by various crypto forums, the method is typically to build an echo
chamber and keep telling each other they're all going to be billionaires,
while burying the opinions of anyone who dares to disagree.

Another method is to get lucky in a bull market and pat themselves on the back
for being so talented.

------
jrochkind1
So does nearly every habitual gambler.

> “Those are legitimate needs that people have, to figure out if there’s a way
> to gamble their way to another lifestyle.”

I'm not sure who decides what "needs" are "legitimate" \-- but can't they just
go to casinos, which have been legalized just about everywhere now?

Also I can't believe that quote, sounds like a parody.

~~~
philipwhiuk
I mean, the casino is more obviously bias towards an institution.

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aitrean
Day trading crypto is a zero sum game. You can profit if you're able to
somewhat predict the madness and stupidity of the market just before the
market acts that way.

~~~
robrenaud
It's less than zero sum, right? Each transaction has a cost.

~~~
Ajedi32
If you're referring to Bitcoin transaction fees, that's not a factor on the
exchanges, since the exchange itself holds all coins in its own wallet until
you decide to withdraw.

~~~
timjver
They were probably referring to the fees that exchanges charge.

~~~
adjkant
There are no fees on GDAX unless you're a taker.

~~~
umanwizard
That's true, but irrelevant. GDAX takes a fee on every trade. Therefore it's a
negative-sum game, not zero.

~~~
daveguy
The casino always wins. True for poker and bitcoin.

------
webninja
Only when the tide goes out do you discover who's been swimming naked. -Warren
Buffett

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valuearb
Guessing at what the market will do is super smart when it doubles every
month.

~~~
notsofastbuddy
The market will eventually stop doubling every month. It's hard to predicted
when that will be, a month in advance. Getting the timing wrong can be
disastrous.

The market will eventually become saturated with efficient traders. For an
efficient trader, this is easy to predict because it is accompanied by a slow
decline in margins. You just have to be able to stop when you can't beat the
market any more.

------
TaylorGood
I’m in a discord chat with about hundred cryptocurrency traders. Reading their
insights is great but wow do they put themselves on a crazy ride. I traded for
one day only and the mind f$&k is a strong one.

~~~
knes
can you link to the discord community? I'm always interested to see community
behaviours in action

~~~
piggybank
Not sure if it's allowed here on HN but, this is the one i'm operating:
[https://discord.gg/CNQf3p](https://discord.gg/CNQf3p)

~~~
ajr0
expired link? (I am not very familiar with discord)

------
IncRnd
> _When he bought his stash, the price of a single litecoin was $67_

> _He sold his holdings on Dec. 12 when litecoin was worth $387, a 570 percent
> gain_

$387 is a 470% gain from $67 not 570%.

~~~
Zenbit_UX
While he may have been exaggerating, I doubt it. These numbers are crazy for
stocks but entirely reasonable in the crypto game.

His math can be explained but a common misconception when buying coins: Whales
move the market. It's impossible to place a six-figure order and get them all
for the same price. Simply placing an order that larger disrupts supply and
demand enough that multiple sellers are required to cover, sometimes hundreds
if your order is filled my small fish.

What's most likely is he placed numerous 'smaller' orders over a period of a
few days and only gave the price of $67 as the highest he/she paid. Probably
loads of coins at much smaller levels and averaged out the returns to 570%.

~~~
hxta98596
No. The price never reached a 570% gain so your "most likely" is impossible.
The error in the article confusing percentage and multiples is one of a common
math errors and the most likely explanation. 382 is 5.7x the price paid or
(382/67). That's not 570%. It's 470%.

The most likely explanation is the majority of bloomberg reports know almost
nothing about finance or math. Unfortunately and sadly it's still some of the
best finance journalism available as there's little competition.

~~~
rspeer
When they lose 75% of the money they invested in Bitcoin, they can keep doing
the same math and be happy about their "25% gain".

~~~
hxta98596
Very difficult to lose 75%. Takes skill. The psychology of traders in any
market, especially amateur traders, is such that loss aversion kicks in much
stronger and quicker than they realize and many traders will get scared and
sell during short term lower % price drops before -75% could even happen to
them. Some exit after -20% losses, some hold until -50%. When the moon door
opens, losses on the way down are usually spread among many traders trying to
catch a falling knife.

The burned traders phenomenon could become a problem for the bitcoin community
though few will talk about it. As even if the price recovers after a drop the
people who thought they could trade it and lost money when they sold during a
short term drop often leave the market and don't return. The same phenomenon
happens in the stock market, and stock trading is a ginormous industry
compared to bitcoin...amateur traders lose money trading stocks, they leave
the market and never return. It's a problem..cue up the next E-Trade baby
commercial ASAP! [1]

The Bitcoin big money now knows they need to control the volatility and spend
hard and fast on marketing their trading platforms to new people constantly.
And that's exactly what these guys behind the scenes appear to be trying to
do. Hence we end up with articles like this one: Bloomberg writing about
"Bitcoin Traders Claim..." that's basically one interview (at a coffee shop)
with one random dude in his early 20s who trades bitcoin in his spare time.
Who is the target audience for this 5th grade book report journalism? The
churn will be huge.

[1]
[https://www.youtube.com/watch?v=hashPaU7Dpk](https://www.youtube.com/watch?v=hashPaU7Dpk)

------
blunte
As they say, past performance is no indication of future potential. This is
especially true the shorter the trader's history. Thus, reading one trader's
secret of success may as well be like listening to a slot machine player's
3-week winning strategy story.

Meanwhile, identifying recurring inefficiencies and working out the details of
how to take advantage of those inefficiencies can produce a more reliable
income. Unfortunately, inefficiencies are really a polite euphemism for "other
people's money that they didn't realize they were losing". Brokers and
exchanges are quick to shut down a successful trader if that trader is costing
them money, just as a casino will ban a player who consistently beats the
house (for enough money to be noticed).

I have my own crypto strategy, and it's about as simple as surfing. Each new
wave (no pun intended, if you know what I mean ;) ) may grow and give you
something to ride. Not all waves do, and timing when to get on is important.
We people on HN probably have a nice advantage over the fascinated (and
gambling-minded) masses. This is perhaps what the guy in the article was
describing was his basis for success.

~~~
jacquesm
> I have my own crypto strategy, and it's about as simple as surfing. Each new
> wave (no pun intended, if you know what I mean ;) ) may grow and give you
> something to ride.

All the way to the scene of the crash.

~~~
blunte
I guess the reason people keep surfing is that one out of every X waves is big
and awesome, and worth the swim back out.

------
mancerayder
"“It’s one of the most inefficient markets I’ve ever seen,” said Arjun Balaji
an engineer who trades cryptocurrencies and surveyed the dot-com bubble from
his vantage point in kindergarten."

That's some vantage point!

------
kjrose
For some people who pump and dump. And others who basically ride the
volatility there’s definitely a method to the madness.

------
phs318u
Ahhh Bitcoin! I've seen literally dozens of HN articles related to BC lately
and over that time the price of BC has fluctuated madly. There's been much
discussion over what's driving the mad price rises, and in the last 48 hours
the price drops. "What are the fundamentals?" people ask?

I'll admit that I had a chance to buy BC at $12. And didn't. (That's twelve.
Not twelve hundred, or twelve thousand. Twelve.)

That doesn't make me unique on HN by any stretch. But I have kept a watching
brief over the years. Here's my gedanken experiment take on all this.

Originally, appealing to IT nerds. Demand grew slowly and the community with
it.

Mysterious founders and mining syndicates made a (theoretical-until-sold)
motza by hoarding coin. Articles started appearing on the strange new tech.

However, at some point demand crossed over into darknet territory. Demand
accelerated. At some point, major crime syndicates started looking at BC as a
way to launder significant amounts. Demand really grew as very heavy money
entered the market.

Let's pause for a moment and consider the possibility that in the last year,
the majority of the market (by volume; excluding the founding hoarders) would
have been the "criminal" element. What are their key requirements of this
"investment"? Opaqueness, security, ability to trade in volume, low or no
"laundering losses". With BC, it's pretty much all green lights. So they kept
piling on.

Then a funny thing happened. The financial services establishment, the same
folk that have historically made fortunes by fleecing the great unwashed, saw
yet another opportunity to part the rubles from the rubes. And so, abetted by
the media's voracious appetite for sensation, talked up this strange, "new",
"this time it's different", investment opportunity. Highlighting the overnight
millions to be made, with stories of people who bought low and sold high.
Gushing about the net worth of the mythical Satoshi.

And so the proles started piling on. When your friends and relatives (the ones
that call you for IT support), who have never heard about BC before last
month, start telling you that they're thinking of buying BC (aided by the
handy smartphone apps of the new "pick and shovel makers"), that they're
borrowing to by BC, that their friends are buying BC. Then any reasonable
person should be hearing "Danger, Will Robinson!".

Criminals aren't stupid. The kind of criminal enterprises that need to wash
hundreds of millions of dollars a month or a week are not stupid. So what
would they make of the increasing volatility? The prospect of not only washing
your money, but growing it in the same transaction would be pretty alluring.
However, as the sums increase, so does the risk. What if it goes down as hard
as it goes up? What's a fiscally prudent criminal to do? Traditionally, if you
get 75% of your money back from the laundry, you're doing well. What if the
market turns and insane profits become insane losses?

When you then add the increased regulatory scrutiny on BC, issues with
exchanges, questions about security and transaction rate limits - perhaps that
makes BC seem increasingly risker than some of the cryptocoin newcomers? As a
launderer, maybe something like Monero might be a safer alternative? Or maybe
stripe your money across a bunch of coins types? So you start pulling out. In
droves.

What happens to a market when some of the biggest players cash out? The rest
crash out.

Which is not to say that BC won't bounce around, recover, fall again, recover
some more etc. But I believe, in the long term, there are better options out
there and historically we'll all look back at BC as a successful failure.
Having single-handedly created a new market for crypto-coin, shocked the
traditional financial players into a new awareness, and yet fizzled into
history as better options come online.

What do y'all think? Possible?

------
ubu7737
"He got interested in bitcoin in college because he liked the idea of a form
of money that couldn’t be manipulated by governments."

Of course he did. The idea of making money by manipulating governments takes
money to begin with. He thought it through.

The real question is, what are we going to do with all these useless people
who want to manipulate currency markets for individual gain?

