In Markets so Supply and Demand Driven Can You Ride the Wave to Riches?
By: Mason Vollum @crypto-mason
(5 minute read)
When first entering the crypto market space people of differing experience levels will first notice the huge volatility that can take place on an intraweek, intraday, and even intrahour basis. Indeed the price and volume of many of the cryptocurrency world’s most traded currencies fluctuates often and markedly. For many this presents the opportunity for outsized returns not seen in many other markets. These returns, however, come at the cost of substantial downside risk.
Equity and Commodity markets are seen as more traditional and safe than many markets currently in existence. They are well regulated, liquid, and represent measurable value in either a company or a good. Major news events such as political, market, and earnings reports have the potential ability to bring about large shifts in the equity and commodity markets. Almost none of these shifts, however, is able to provide the outsized returns many investors are currently looking for and with markets at an all time high many are looking for alternatives in order to diversify their holdings.
Speculation Driving Speculation
When considering human nature one of the more interesting aspects is that of our tendency to follow trends. Whether fashion, finance, fitness, food, or other; humans love to follow in the footsteps of their peers. This type of mentality can often cause demand pressure for an item or good purely based on its already existing demand.
Humans are, by nature, cyclical beings.
And while we tend to repeat the same patterns over and over again we are very bad at recognizing that we are doing so.
Italian philosopher George Santayana said it best:
”Those who cannot remember the past are condemned to repeat it.”
The dominance of our short term memory over our long term memory gets us into trouble frequently and famously. We start wars forgetting the pain the last caused. We talk to exes thinking something will be different this time. We invest in assets that we’ve lost on before. If the most predominant human sickness were to be defined externally it would probably be our shortsightedness.
Typically Technical Analysis is Too Touchy
In traditional markets technical analysis serves an after the fact tool following the market fundamentals. TA can help you find psychological support and resistance lines typically at whole numbers nearing fundamental performance levels. With humans constantly trading, market movements become more and more based on the psychology of those trading it. Confirmation bias can help a price go on extended runs. Fear, uncertainty, and doubt can cause the market to fall far below its true value. And voila, said market has succumbed to human psychology.
“The market can stay irrational longer than you can stay solvent.” -John Maynard Keynes
The Current Crypto Market
So with a market that is almost purely speculative is it any surprise that TA holds up in such a strong manner? One only has to look at Youtube in order to find thousands amateur investors using the charts to call price movements. Many of these same ‘investors’ base their decision making on the past performance of an asset and fail to hold tempered beliefs.
While many amazing assets and utilities currently exist, and are being developed on, the blockchain there are many more that have almost no real value, current or expected. With this market currently giving outsized returns to even the average Joe Schmoe on daily basis we have to ask ourselves if the unabashed way we talk about this growth is not inherently unhealthy.
As a participant and user of many different new blockchain solutions such as steemit, storj, and etheroll to name a few I know the massive impact that cryptocurrencies can have on the world. But as I continue to see in-use protocols diminish in value and useless or non-implemented protocols increase in value due to speculation. I wonder whether we can really hope to sustain the amount of growth we’ve been seeing and whether we really want this kind of growth right now.
Money Money Heyyyymoneyy
Look, I’m always happy to be making money. It makes my life easier allowing me to enjoy and not worry as much. That said do you really want to make money off of the inexperience and greenness of others? Or would you rather build long term, sustainable, value?
This post ended up being less about economics and more about market psychology than I intended. But this brings up an interesting point: Can we really separate economics from the other human sciences?
Best,
Mason
At the end of the article, you pose the question of building "long-term, sustainable, value?". Some of the blockchain-based applications you mentioned such as Steemit and Storj have already proven themselves to be useful technologies, so do you see these cryptos as a potential source of long-term, sustainable value? Or, would you say that all cryptos on the market today, including Bitcoin, are too early in their life cycles to be considered a non-speculative investment?
Good question. I think there will be speculation among these asset classes for while regardless of their utility. In-use networks are already proving their utility, however, and I think this sets them apart from other crypto's that barely have a proof of concept or worse.
cheers,
Mason
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