In the cryptocurrency market, anybody with a laptop, a little coding knowledge and a dream can invent a new asset, programming a financial instrument from their garage, scaring the pants off of regulators like the SEC, and many banks. That’s why it’s so popular among libertarians – it’s liberty money. However, freedom also comes with responsibility. A free market with little oversight and no system of redress leads to widespread scams and other shady projects.
There are many ways to address this issue – for example, asking ICOs to get escrows to hold their funds until they reach key points in their projects, to prevent them taking the money and running. We can also leverage media to exposed poorly-conceived coins. And, as crypto journalist and consultant Juan Galt points out in this interview, we can stick to established projects like Bitcoin.
Thinning out the field
In a market of 1500+ coins, many of which were probably started on a whim, it’s unlikely that most of them will survive the long term. Many won’t ever be widely traded on exchanges, let alone becoming money, being widely used in commerce in any society, and many, such as Ethereum, don’t even intend to become currencies. Bitcoin, being the biggest and oldest cryptocurrency, is one of few which have the chance to gain world reserve currency status.
The gap of libertarian thought
Libertarians don’t want government oversight in most markets – they believe that commerce can work just fine on its own in many cases. However, it does seem that crypto libertarians are overlooking just how out of control things can be without regulation. Fraud is rampant among crypto projects, and the resources we have to address it are still limited.
Crypto start-ups create fancy presentations, write whitepapers, create flashy but meaningless marketing campaigns on any social media platform that will still allow them, raising thousands or millions of dollars. Then when the campaign ends, the projects have little accountability. The tokens are not contracts, and they make no guarantees of any return on investment. Legally, the creators can walk without consequence.
We can expose bad actors by talking about them on blogs and YouTube channels, shaming them for their actions and encouraging others to withdraw support. Or, as Juan suggests, we can ignore them entirely, and stick with Bitcoin.
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Lots of people who are involved in crypto have opinions about the direction of the market. People standing on the sidelines can tell you that it’s over and will never recover after the crash in 2018. However, for people who have been in this for a while, we can see the patterns. Bitcoin bubbled at $30, $200, $1,000, and $20,000, and some were even expecting the rise and fall.
Nobody knows the day or hour when these patterns and cycles will play out, but we can say at least that they probably will. A bubble will form and a bubble will pop. The price will jump up very quickly just before a crash. There will be a sell-off after Christmas… and the loudest people will lose interest when the real growth begins.
Bubble after bubble
A lot of people think that the 2017 crypto bubble has popped, and now the market will never recover. They’re not aware of Bitcoin’s previous bubbles, peaking at $35 in 2011, $200 in early 2013 and $1000 in late 2013. They believe it’s just like the dot-com bubble, rising once and never again.
However, this market has a different dynamic, in a different era. It’s not just exposed to Wall Street traders – almost anybody in the world with a smartphone can buy cryptocurrency, and as it gets more user friendly, more and more people will start accessing it. For good or bad, it’s likely that the market will become overhyped many more times before this technology is commonplace.
We know a bubble will come again, so we can begin preparing for it now, in order to take advantage.
Putting on the boosters
A consistent pattern to look for is when a coin grows in price over many months, perhaps going up 500% or more, then suddenly increases, going up another 50% in just a matter of days. When it does that, it’s likely that the rally is nearly over.
As I mentioned last week, many people will become emotional at this point, losing themselves in visions of swimming in money like Scrooge McDuck. That feeling is a key signal that it’s time to preserve your wealth, rather than expand it.
After Christmas sell-off
Another very consistent pattern is a sell-off after Christmas. Some say that’s Chinese preparing for Lunar NY, a dubious explanation. Whatever the cause, it’s consistent enough that you should set a reminder in your calendar for December 20th. Seriously, pull out your phone or Google calendar or your day planner and write it in there. Do it now. Don’t leave it for later. Do it now, and thank me later.
A quiet rally
Last week I talked about the sentiment on social media. As I said, it’s most noticeable when things are getting overheated, when a lot of new money is coming in and people are overhyped. After the crash, Bitcoin would start to rally and people would say “Is this the return, the second coming? Is something special happening again?”
Ed Bugos of The Dollar Vigilante pointed out that in every subsequent rally, there are less and less cheerleaders on social media. It might be because these people bought in high and they’re holding onto the hope of recovering their losses… Eventually they lose hope. In any case, when the price starts to move up without fanfare, that’s much more likely to be a lasting trend. When there’s no fanfare, that’s when the increase isn’t about flashiness or hype, it’s real growth.
Thank you
Thank you for listening. Please share this article, video and podcast with your friends so they can learn and enjoy.
Most importantly, stay grateful.
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Is it possible to know where the crypto market is heading? Can you tell when the market is overbought, overheated, and getting close to a correction?
Here are three simple ways you can get an idea of where the crypto market is heading, especially when a lot of money is moving into the market, and it’s reaching the peak of a bull market. Let’s look at our own biases, then our own emotions, and finally some patterns of behaviour of others on social media.
Recency Bias
Being aware of your own biases can help you step back and see things more clearly, maintaining perspective where you otherwise might lose it. Recency bias is one of these biases, where you believe you know what will continue to happen, because you’re prioritising the events of recent months.
In past months, we saw comments on social media like: “I don’t think it’ll go down that much. It doesn’t seem like it’ll go that low. I don’t feel it’ll drop like that.” Thinking, seeming, feeling… But where’s the evidence? The evidence is probably that things have been this way recently, so they’re giving this data priority.
A lot of people made this mistake when BTC was around $15,000, thinking no way it could go down to $5,000 again. At time of writing it’s around $6,300 and $5,000 seems like a real possibility. If they’d been looking back at the 2013 bull run, they could see when BTC went up to $1,100 then bottomed out around $200 8 months later, it would have given them a much clearer picture of what was possible.
Similarly, we see this when crypto has been going down for 6 months. If someone isn’t really into markets, tell them you’re thinking of buying now and they might say “Why? Isn’t that whole thing dead?” The market goes up for a few months, people think it’ll never fall. The market goes down for a few months, people think it’ll never recover.
The lesson is: when you think you know where something is going, ask yourself how you know. Maybe you don’t know. It might just be recency bias.
Your own emotional guide
One wonderful tool you can use to judge what is going on in the market, is your own emotions.
Here is one common scenario for cryptonauts: You’ve put a fair chunk of cash into a project when it was doing nothing, and now it’s taking off. You start wondering “Is this thing going to make me a millionaire?” You see the figures and your head starts swimming, you feel light-headed and say to yourself “Hoo… that’s a lot of money.” Right at that point, at that moment, you will know that other people are feeling the same. It’s almost certainly a sign that you’re overexposed to the market. Start thinking how you would feel if it dropped back down and you didn’t take at least a little profit, to have something to show for your stress.
Or let’s say you haven’t put much money into a project, and you’ve seen it go up 5x without you. You start thinking “Everyone’s going to be a millionaire but me!” You start thinking about where to get some quick cash to put into it so you don’t miss out. At that moment, you will know that other people are feeling the same. It might keep going up before it goes down, but you need to know, any money you put in at that point is very risky. You’re feeling it, other people are feeling it, so you know it’s close to the top.
The lesson is: your own emotions are a powerful guide to tell you what other people are thinking and feeling.
Social media sentiment
Another great tool for seeing where the market is heading, is social media. There’s always going to be a lot of noise out there, but by digesting people’s comments, seeing where their heads are at, you’re going to hear the thoughts of the money in the market. If there’s a bunch of people with their heads down working on building the future, you might not hear so much about it – hard work isn’t always noisy. If there’s a multitude of people, fresh to the market, thinking they know it all, believing themselves genius traders, rest assured, if you look at Facebook groups and YouTube comments, you will hear them. Look out for these clusters of behaviour, and treat them as warning signs.
Poetic speech
People say “This is a new paradigm! The dollar is crashing against crypto! BTC isn’t the bubble; it’s the pin!” There is a little bit of truth to these statements, and that’s what makes them so seductive. They have this poetry or glamour to them, they appeal to anarchists and people who want to see bankers kicked off their thrones, ideological Bitcoiners. The technology is revolutionary… but that doesn’t mean the price will go up forever without crashing.
Glib logic
When people are engaged by emotions, they’re more likely to make simpler, weaker arguments, and they may also come from a place of ignorance. One argument I remember making in 2013 was: “Litecoin has 4 times the supply of Bitcoin, therefore Litecoin should be 1/4 the price of Bitcoin.” Another one I heard recently was: “Bitcoin has a limited supply. That means it can go up forever.” And another: “The Ethereum price will rise to the same ratio that it previously had with Bitcoin.”
These arguments are superficially appealing, but analysed more closely we can see that they’re not accounting for the difference in demand. To predict a price, we need to know future demand as well as future supply. Even so, when we hear this kind of argument we can know that there may be many new speculators in the market.
Brazen predictions
“Ethereum will be $4500 on March 17th, 2019 – wut!” No reasoning, no argument, no technical analysis, no fundamental analysis. This prediction is mostly without meaning, except that it shows investors are getting very bold, so swept in the hype, that they believe a statement with no reason is valuable.
Test the sentiment
When people are saying how Bitcoin is the pin, how high it will go, make a measured comment saying “I don’t think the price will keep going up forever.” See how many people pounce on you, and how upset they get. At this stage, people may be so filled by emotion, so much in their own little bubble, they will get whipped up into a frenzy at the mere mention that the market might crash.
Conclusion
Many people follow their own emotions, reacting to their own emotions. That means when market makers or media push their buttons, they act on them. Like leaves in the wind, moving at the whim of the forces that surround them.
What we’re aiming for here is self-awareness. When you’re aware of your own emotions, you can respond to them accordingly, like tells in a card game. When the news plays on your fear, telling you to do one thing, you can step back, pause, think about it. You can do the opposite, or simply do nothing at all.
Now, you know better. Now, you are not subject to force. Now, you become force. As our great teacher Lao-Tzu said, he who controls others is strong, but he who controls himself is powerful indeed.
Thank you
Thank you for reading, watching and listening. If you got to this point, I’m sure you enjoyed it, and so my humble request is that you share this article, video and podcast with your friends and family so they can also benefit.
