Volatility is the name of the game. If you’re a trader, volatility is your bread and butter, riding the trends like a pro surfer. In order to do that well, any surfer worth their board, as it were, sets themselves strict rules before hitting the waves (like, don’t go out in a hurricane). When you stick with your rules, (as long as they’re solid ones) you probably won’t get into more than you can handle. Unfortunately few crypto traders even have rules to follow.
Awash In Impulse Buys
Buying something on impulse, whether based on a quick evaluation or a “tip” from a Telegram group, is rarely as attractive after thorough investigation. The widespread propagation of this trend is a symptom of the disease that must be excised from the community. While the cryptocurrency market cap has grown immensely, that growth sparked a sea of coin offerings offering little more than a ticker and an airdrop. Those essentially worthless coins behave much like the penny stocks of the 1990s insofar as they’re easily manipulated.
Market Manipulation
Manipulation is certainly occurring, but it’s hard to pin it on a single culprit. There are so many to choose from. Pump and Dump groups on Telegram convince all users they’re buying early, when in reality few if any participants will see a profit; most will lose the lion’s share of their money. Large syndicates have often been accused of making massive buys and sells, and institutions began shorting Bitcoin on the CME and CBOE as soon as humanly possible.
Large Institutions
Some postulate this is in part an effort to depress prices in order to facilitate long-term dollar-cost averaging. Others believe those institutions simply lack faith in blockchain and Bitcoin. That seems unlikely, however, as the same institutions which derided cryptocurrencies for most of 2016–2017 have now opened crypto trading desks. Jamie Dimon recently apologized for calling Bitcoin a fraud, and some banks are even considering using Ripple for certain services.
Blockchain Technology
Banks currently use vastly outdated technology for international transfers, which can be far more cheaply and quickly accomplished with blockchain. We all know the many applications of blockchain technology from logistics to libraries but not all of those things require a coin or token. The tendency to tokenize everything isn’t necessarily healthy for the development of the technology as a whole. Take Long Blockchain, a commonly used example. The beverage company changed their name to include the word Blockchain and saw a huge spike in the stock price followed by an immediate decline.
Finding Stability
This sort of volatility is extremely difficult to harness for anyone who follows good rules. Not to get into the nitty-gritty of it, but volatility over 10% in a day on a regular basis is difficult to manage (to say the least). That’s not to say it’s not possible if you’re skilled and experienced, but most crypto traders are beginners. We who are initiated into the blockchain world often forget our humble beginnings, and that statistically we’re among the most knowledgeable people on earth in blockchain (because 99% of people still have no idea what it is). Despite numerous brave souls working tirelessly to educate the public, most get into crypto with no clue, so they’re left to educate themselves amidst a sea of fake news and pump and dump groups promising easy money. The lack of regulation only makes this easier.
Regulation
Regulation has become a dirty word in some crypto circles. Bitcoin was initially intended to be a digital cash, free from censorship or control, but at this point it’s treated more like a commodity by most. At least in my opinion, nothing’s going to stay unregulated when it’s worth 12 figures. What that regulation will look like is anyone’s guess, but one would hope that someone will protect innocent retail investors from malicious actors, of which there are many. As a result of that regulatory clarity though, the blockchains and companies that remain will improve and thrive.
A Legitimate Enterprise
Almost any business does its best to comply with the law, even if for no other reason than to avoid fines or imprisonment. New blockchain companies and even TGEs are no different as a whole. They want to conduct legitimate business in a new technological space, and the vast majority of lawmakers lack the motivation or knowledge to legislate effectively. Others simply believe regulating such a nascent industry heavily could restrict growth or even suffocate it. Regardless, the recent news that the SEC won’t regulate Ethereum as a security is encouraging. Regulation without thorough understanding of the subject is rarely effective or beneficial, and hopefully now the industry will begin to self-regulate and set best practices.
The Surfer
What’s all this mean for the wave-riders? For one thing, the water will probably get less choppy and rough over time. But the tide is coming in, and there’s plenty of big, smooth waves to surf...