New Crypto Market Data from Chainalysis Suggests Key Information on Bitcoin Trading, Short vs Long Term Investing
This summary is going to examine some of the long term Bitcoin investors (hodlers/whales) vs short term speculators (get rich quick/guppies) characteristics that have been assembled and gathered
Before we jump into a fascinating story about a popular bitcoin personality,
Few stories both captivate the public imagination and encapsulate the concept of Bitcoin as greatly as the story of “Bitcoin Dad.” The user is known most commonly by this simple nickname, which was popularized on social media as his handle/username while he rose to international fame.
The 39-year-old man gained notoriety for successfully investing in Bitcoin, making incredible profits when its price spiked to over $20,000 in mid-2017.
Sporting a Bitcoin “to the moon” shirt, the insurance salesman walked out of his work for the last time after fourteen years of hard work.
After leaving the industry for good, the man retired to trade his currencies as a full-time position. Stories like the tale of Bitcoin Dad are not uncommon within the world of cryptocurrencies. Untold thousands of lucky early investors in the currency became multi-millionaires when Bitcoin climbed drastically in price.
With massive returns like those seen by this insurance salesman, it is no wonder that so many look to cryptocurrency trading as a potential avenue to change their own lives.
Millions of investors all over the world have flocked to the crypto markets in the hopes of cashing in on massive, unprecedented returns seen by others who chose to convert their fiat currency to new decentralized, digital currencies such as Bitcoin.
These stories make up much of the lore surrounding Bitcoin. As a decentralized currency with intentions rooted in a fear of establishment and a love for equity, the currency seems tailor-made for the task of giving the little guy, such as a 39 year-old father from the United States, a shot at making a real fortune from nearly nothing.
Because of its perfect fit for the narrative driven by even the creators of the cryptocurrency, the story of Bitcoin Dad, like many others, climbs to the top of the imagination of most would-be full time crypto fanatics and investors.
But despite the hype, very few investors in the quickly-changing and volatile market ever end up seeing a significant profit, and far fewer are able to quit their day jobs and become full-time traders. With all of the interest surrounding the market in 2018, the community continues to question the extent to which mass success stories—such as the tale of Bitcoin Dad—accurately characterize the opportunities laden in the changing world of Bitcoin.
In fact, data seems to suggest that these stories are outliers, and that the actual reality for Bitcoin currency trading may be far darker, and much less opportunistic for the little guy.
Climbing Public Interest
A finance professor from the esteemed Duke University recently outlined the potential for bandwagon following of a trend like Bitcoin. He remarked that, when people “see something move up,” they “jump on the bandwagon.” He lamented that, while Bitcoin once was primarily used by people who understood the complex technology behind the coin, it eventually became dominated by investors who had little interest in the intricately spinning wheels which create their fabled profits.
The bandwagon effect, he elaborated, is common among investments, and even more common when these investments are deeply technical in nature. When people see the hype and watch the prices rise, they begin to jump on the bandwagon. But eventually, the buck stops, and the true worth of the investment will begin to win out over the speculation behind the bandwagon.
A Liquidity Breakdown
A major event happened to break the Bitcoin bubble this year. Of course, this event came in response to the massive price increase of 2017. Millions of Bitcoin holders sold everything they had. A Chanalysis study found that holders dumped over USD $30 billion of Bitcoin in their mass sellout in response to the price spike.
Chainalysis’ chief economist, Philip Gradwell, refers to the event as the “liquidity event” of Bitcoin. He calls the event one of the main reasons behind the crash in Bitcoin’s price this year. With the amount of Bitcoin available to be traded rising by nearly 60% during the time period, trade falling significantly, and prices quickly plummeting, it is no wonder why the currency took a nosedive following the most massive selling in its history.
The Future of Bitcoin
The future of Bitcoin is largely unclear. Chainalysis speculates that both market volatility and outside regulatory efforts are both likely to play a pivotal role in the future price of Bitcoin, as well as various other coins that have cropped up in recent years. However, the market is as unpredictable as it is alluring.
In fact, author David Gerard remarked that the currency is “thinly traded, very badly structured,” and that it has the massive opportunity to be manipulated, especially by mass holders of the token. More importantly, he found that the data consistently supports the claim that a small, elite group of cryptocurrency holders, known as “whales,” control the market and have the heavy potential to manipulate changes in price.
The analysis backs his claims, too. Only 1,600 wallets hold nearly one-third of all Bitcoin in circulation. Of these “whales,” under 100 wallets hold up to $750 million in the digital currency. This contributes, in large part, to the increasing volatility of the currency. As more coin is taken off of the market, the currency which remains on the market remains at the hands of wild speculation and, quite possibly, intense price manipulation.
The New Investors
Though the outlook may still be bleak, professionals in the industry speculate that the most successful investors are the ones who are willing to shirk some longstanding traditions in the world of investment, in exchange for “faster liquidity.” These investors don’t just recognize, but embrace the liquidity and volatility of the market.
But by far, those most likely to profit from Bitcoin, regardless of price, are those facilitating the exchange. Millions of investors have flocked to exchange websites in a massive effort to capitalize on the changes in the market. These exchange sites have made billions in fees and percentages.
In short, the only people immune to the volatility of trade, are the ones on the other side of it. Thanks to the Financial Times for putting together the original and we just summarized and added our own parts to it! Thanks and make sure to stick around and join our channels for daily news and updates!