Bitcoin Traders Claim There’s Method to Their Madness
bloomberg.com
bloomberg.com
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.
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
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?
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.
You'd be surprised at the number of people who would proclaim "I'm rich!" and then the stock market tanks before they sell.
It is obvious, yes, but only if you actually give it a moment of thought. Many people don't.
Mom & pop class investors who characteristically are the ones left holding the bag when a bubble pops.
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.
It doesn't literally mean 'stay at home mom and dad that owns a corner store'.
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.
How'd you confirm that estimate, by making a trade?
1) Send to GDAX 2) Sell on GDAX 3) Withdraw to Bank
Another method is to get lucky in a bull market and pat themselves on the back for being so talented.
> “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.
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.
The later do have systems in place to make money off the former.
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.
I put my money on waiting until after Tether [1] fraud gets exposed.
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.
> 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%.
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%.
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.
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.
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.
All the way to the scene of the crash.
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.
That's some vantage point!
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?
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?