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.
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.
A very effective trading strategy is to predict how others will react when fooled by randomness. Difficult in the stock market, easier in smaller markets like sports betting and crypto currency.
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.
If you're also selling it, then yes, you're making money. Otherwise, you are merely holding a speculative investment that you may or may not be able to eventually make money on.
I didn’t downvote it, but it’s so obvious as to be unhelpful. Who needs to be reminded that an asset isn’t worth its price until it’s liquidated? It’s self-evident, and yet you have it following every time someone mentions returns on BTC. You have it at least twice here on this thread, in fact.
For most assets, you can generally assume it will be close to what it currently is priced at. btc is different in that regard because holding onto it for a week or even a day can easily cause it's value to double or half.
That's why its different because while you think you have that much money, by the time you actually get around to selling it, the price can be radically different
Some assets are more volitile than others. I feel that we are moving backwards here in terms of restating obvious and extremely basic principles. Anyway, I’m not at all convinced that BTC is different in kind relative to, say, normal FX trading. The spreads do tend to be higher, though. What’s far more interesting to me is BTC’s resilience as an asset in spite of massive, demonstrable (and frankly, predictable and preventable) failures like MtGox.
Edit: Think about shares held in a startup. Those are insanely volitile. Does anyone need to reminded that they aren’t rich until they convert their shares into cash?
> For most assets, you can generally assume it will be close to what it currently is priced at.
True with some caveats.
This statement assumes no forward rate. If the risk-free rate is high, then the future price should generally be expected to appreciate.
This statement also requires some assumptions about the probability distribution of future price changes.
Let's take a common example of a multi-modal distribution: court decisions. Imagine companies XYZ and ABC are engaged in a patent dispute. Both companies profit greatly from the production and sale of doodads, and (for the sake of example) we have been told that exactly one company will need to cease doodad production as a result of the decision. The company that ceases production should trade down as a result of its lost future profits, and the other company should trade up. In this case, even though the current prices may be E[XYZ] and E[ABC], the future price is going to be markedly different for both.
Still I don't think general advice like "Until you successfully cash out, you’ve made nothing." is appropriate.
It's like "Don't spend more than you have" - it's true but if people didn't learn it by their 30s, chances are low they learn it by mentioning it once more.
But my specific disliking is elicited by the fact that this looks like virtue signalling. If you're uniquely interested in educating moms and dads, write your general investment advice in the forums they like to frequent. Or write a blog post. If you didn't do that by now, maybe you're only concerned with showing that you're concerned without actually doing anything more effective about it.
Note this is just my interpretation based on what I read and it might be wrong.
Most assets can be liquidated with far less trouble then BTC. The counterparty risk with selling BTC is through the roof - just ask Mt. Gox's creditors.
All currencies are assets intended to be exchanged for other assets. Go read the original Bitcoin whitepaper. It’s all about enabling transactions—not hoarding an mountain of coins like some kind of mythological dragon. Whether or not bitcoin is converted to other currencies during a transaction is irrelevant.
You can buy several things with bitcoin, as with government-backed currency. Speaking simply, both are "money."
2. Because it annoyingly misses the point.
If I buy a stock and it goes up, I might tell a friend that I "made money" on that stock. If he replies "no, you simply have an unrealized capital gain," then he obviously can't see the forest for the trees and I'm not going to invite him to my birthday party.
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.
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.
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.
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.
The problem is that not everybody sitting on minor btc fortunes can cash out without tanking the price. It’s purely speculative value on low trading volumes.
Unfortunately GDAX by default only allows to withdraw $10k per day. It's possible to ask for an increased limit, but reviewing those requests currently seems to take multiple weeks for them.
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.
Yes gamblers or speculators or whatever they may be called could go to casinos in person. Or gamble via online poker. Or go bet on a horse race. Or on sports via a bookie. Or trade bitcoins from their phone. Just different games for different tastes and currently legal.
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.
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.
this is the simplest, most correct understanding. there are some things that drive the price of bitcoin that are more fundamental, like instability of various currencies, and government regulations on btc. but none of those have changed drastically recently. so what is driving the price? hype, and the price itself. i think you should be pretty skeptical any time you made money and youre not sure why.
I know exactly why I made money. This is a ponzi scheme with unlimited uninformed people joining. You feel your personal level of risk, find a time, and invest only what you can afford to lose. You can do the same with Tupperware if you know enough people to sign up under you, grab a bunch of free product and sign out.
During previous dips, it was 100% guaranteed you could get a good return in one week. So that's exactly what any smart person was doing. Some could risk more, power to them.
Personally, I'm not touching the market until it gets a lot closer to $1k. And I think the odds are getting better every day.
didnt mean to imply that you or someone else didnt. just that lots of people are deluding themselves in to thinking that they are tech scions who know something special about "blockchain technology" and are profiting off bitcoin because of this. and that is not to say that the tech is not interesting, or without some interesting applications. just that there seem to be a crop of idiots who are acting like they did more than just get temporarily lucky.
I often hear this theory that tether is just printing bills that are not backed by actual USD... Which I doubt is occurring... But even if it is and every single tether is counterfeit, the market cap of Tether is a mere $1.2 billion. To put that in perspective, Bitcoin's cap is $240 billion. Tether is not a major factor in Bitcoin's price. Sorry.
The market will eventually stop doubling every month. It's hard to predicted when that will be, a month in advance. Getting the timing wrong can be disastrous.
The market will eventually become saturated with efficient traders. For an efficient trader, this is easy to predict because it is accompanied by a slow decline in margins. You just have to be able to stop when you can't beat the market any more.
I’m in a discord chat with about hundred cryptocurrency traders. Reading their insights is great but wow do they put themselves on a crazy ride. I traded for one day only and the mind f$&k is a strong one.
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%.
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.
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.
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.
> 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.
So far, it seems to me that a level-headed crypto bull would have had an advantage over the average crypto trader. Winning strategy, historically, would be to be biased towards holding Bitcoin, but selling when the price rises start to reach maybe 20% /day, and resisting the urge to buy back in when the price is rebounding a few months after a major bubble burst, choosing instead to start buying when the price has gone down to 20% of the previous top.
One problem is, it's really hard to follow that strategy since most if the time, it'll look like the market is moving against you. A bigger problem is that the strategy assumes Bitcoin will continue to rise in valuation for at least one more bubble. Which is a huge assumption to make.
"“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."
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.
