Thoughts and Opinions on the Current Mood of the Crypto Market in Late March 2018
Cryptocurrency has been a little bit more volatile than usual lately, big upward and downward price movements are coming quickly and with little warning. That isn’t good or bad, it just is.
The market seems to be in a volatile version of indecision, which is potentially profitable if you are nimble, but full of traps if you aren’t careful.
The point here is this: While it isn’t atypical for cryptocurrency to be volatile, the current volatility is notable. So, what is up with the volatility?
- From one perspective this can be seen as a battle between bulls (all traders who want crypto to go up in a given moment) and bears (all traders who want crypto to go up in a given moment). The traders are making an effort either to ward off or manifest the formation of bearish and bullish chart patterns. One of these is the overarching bearish death cross of the 50-day and 200-day moving averages that is forming.
- From another perspective, this can seen be as the result of a lot of technical traders trading in a somewhat thin market filled with historic support and resistance levels (there are a lot of support and resistance levels, and technical traders trading between them are quick to dump or buy when a level does or doesn’t hold; but then on top of this there is a lack of new money coming in to offset that, thus it’s easier for a few big players and technical traders to team up in the moment and push the price far in one direction at a quick pace).
From both perspectives, bulls and bears are going tit for tat and treading water at most times, but then suddenly one side or the other will make a run for the next support or resistance level and we’ll see Bitcoin prices move $300, $500, or even $1,000 in periods of 15, 30, to 60 minutes (and then other cryptos follow with even bigger moves, in sometimes even shorter timeframes).
- The results are both positive and negative (depending on your perspective). On one hand big money can be made more lost in a short time frame by taking a bet on a support or resistance level (watching a few indicators like volume, RSI, and moving averages help).
- On the other hand, it is very easy to get psyched out as an average investor or trader (there are many chances to get FOMO, and many chances to buy high and get trapped for a while).
To do well in this market you either need to zoom out and play a longer term strategy (like “buy the dips, hold, and take some profits where you see them”), or trade very nimbly and take risks. Those who are nimble and take risks can make big gains or take big losses, those playing a long term strategy are just hoping that the position they build today will pay off when the mood shifts at some later date.
The problem with both of those strategies is the same, the volatility. In a market that can gain or lose $1k in value in moments, there is a lack of conservative investment strategies that investors can employ with confidence… and even conservative strategies can feel a bit like gambling (even more than usual). Meanwhile, the big losses can wipe out even the best of traders if they aren’t careful about setting stops and such (just take a look at BitMexRekt on Twitter).
The real underlying problem here is that this is likely to cause fatigue, and thus trading volume is likely to decline. Thus, volatility is likely to increase for the time being.
Bitcoin and cryptocurrency have never been particularly stable markets to say the least, and that is part of what makes them enticing to new investors aside from the technology. However, there is a limit to what the average person will put up with.
Consider, where we spent the better half of 2017 in an uptrend (where it was volatile, but the trajectory was up, so “buy the dips and HODL” was a strategy that was rewarded with patience) and where we spent a good bit of time since the January 2018 correction in a downtrend (where it was volatile, but the trajectory was down, so panic sell wasn’t always the worst move)… the current market is shaking around in between those two states making the idea of holding and/or selling either crypto or cash less comfortable that it usually is.
This really isn’t good or bad, or totally abnormal, or even a problem from a general frame. It just sort of is what it is.
More than just stating what the current mood is like, an exercise that I’m not sure has any value beyond me being able to point to this page later when the mood changes (and it will), I think the value in stating all this is found in looking at what brought us to this point:
If anything, this is all just the after-effects of the last epic Bitcoin and altcoin runs coming back as a spectre to haunt the markets.
Had every coin not gone up 400%, 1,000%, 50,000%, etc in such a short time period, there would not be this string of odd support and resistance levels covering the charts. If that didn’t happen we wouldn’t have so much money once in the market waiting in coins or shying a way from re-entering. If that didn’t happen, we wouldn’t have had the massive influx of attention, but at the same time, it wouldn’t have then gone away so quickly either (the timeframe in which the general population got stoked on crypto and then not so much was a little annoying, crypto is better than that).
This is all leading up to a point though. It is this: The market from 2017 to now, as seen on a chart and in practice today, is essentially a reflection of human nature + credit.
One reason bubbles take the shape they do, with each looking so recognizable, is that human factors and speculative finance are both in play at the same time (this being true in every bubble, regardless of the underlying asset).
The FOMO, the leverage, the betting takes us up quick, then the panic, the leverage, and the betting takes us down quick. Then comes the disinterest (later will come the renewed interest). All this then forms a chart pattern filled with resistance levels, and it takes so much to break out that often the asset does not succeed to do so in a short period of time. Instead, the asset enters a cool off period and becomes “boring.”
I really have no doubt in my mind that the general long term trajectory of cryptocurrency is up (luckily it is a revolutionary technology and not a tulip), and in fact this volatile period could be what marks the start of the next period where the trajectory is up (or it could be a step on the journey to “boring” and then up from there).
However, crystal balls I don’t have aside, in the moment things are more than a little zany.
Still, all that noted, those who believe in the future of crypto should not be overly swayed by the mood of the day.
To make it into the possible future where crypto is a big deal with cryptocurrency on hand (figuratively speaking), one must be in the market in some respect (that doesn’t mean be all-in, it just means having some sort of exposure and actively in place game plan).
Of course, being in the market means accepting that we could go up 400% or down another 80% (or whatever, those are just example numbers based off what has historically occurred).
I’ve only met a scarce few who were really ready to go down 80%. So to offset that it makes sense to be cautious. Some will take profits here and there as a cautious measure, others will just gradually build a position over time, others will go all in and HODL and embrace their zen.
If you are realistic about your environment, then the moves you make are just a matter of choice. If you don’t know what is going on, try to fight back the FOMO and pick a strategy that will carry you into the crypto future with us through every difficult spot in the path on the journey.
This market is likely to look like it is going on an epic bull run and then look like it is crashing to zero at least a few times a day until the mood shifts.
Luckily, the mood of the crypto market is itself rather fickle, volatile, and changeable… so we are bound to see a notably different mood in the near future. Hopefully that mood is renewed interest, confidence, and a slow and steady rise back to the top!