The Present
Early days are slipping away, the Bitcoin Fork approaches, like an ineffable shadow. No one can really argue, that the blockchain technology gains momentum, whilst in the penumbra of fiat, the banking luddites are growing in numbers, sharpening their policy spears to unseat the threat to their old world grip. The newbies buy and sell on a six-pence, emotions ruling their reason, their logic formed by the nonsense of YouTube and wild promethean desire to drive Italian sports cars towards our luna heavenly body. The medium and long shot hodlers, whittle the hours away, sensibly transferring coins from exchange to PC, to paper wallet, to fire proof safe and in some severe cases tattoos! To miss quote Freddie Mercury; “Is this the real life or this just” fallacy?
Pitfalls
The idea that millions can be made from cents is resonating around the cryptoworld, from reddit to YouTube, ICO’s to FaceBook. I am sure you can all agree, that we all have mistaken beliefs from time to time, indeed, the way our minds work, create these conditions. Our minds like to take shortcuts. The crypto currency markets are a demonstration of this in action.
‘Gamblers fallacy’ is a misled understanding about random progressions of events. For example; When observing a game of ‘High or low’ in cards, the gambler witnesses the following sequence; 3 of Spades, 2 of Diamonds, 2 of Clubs, 6 of Hearts. Would you bet as he did, that the next card would be high? Most would. This observation of a consistent streak of low numbers gives birth to the mental assumption that it is probable, that the next card will be ‘high’, he bets all in, the card drawn is…..the 2 of spades. He loses all his money.
This mental process is one of the pitfalls of crypto trading. I have fallen foul of this myself a few times. A coin drops, the ICO seems solid, it drops again, the price is low, I hit it hard, all in, surely it can only go up now? Then it goes down again, and again. I wait another week, the bears assault the market, I give up, sell all, cut my losses. It would be easy to say at this point, that I should have held on, waited until the coin went back up right? Well, some coins never recover, some die. Forever. USBcoin, ComputerCoin, HonorCoin, all died and cost investors millions, the idea that waiting around forever, it would surely make a return. Not all do, so be careful, before you buy in, set a realistic out point and stick to it. It is difficult though, I know, as it took me at least a month to realise that I had become addicted to crypto currency trading.
Crypto addiction
My alarm went off in the morning, I grabbed my phone from the side, turned off flight safe mode, selected my Blockfolio. I anticipated the positive shift in the market....Come on...Come on... I see red. “the psychiatric community generally regarded pathological gambling as more of a compulsion than an addiction—a behavior primarily motivated by the need to relieve anxiety rather than a craving for intense pleasure.” (Jabr, 2013).
The anticipation of change has an effect on the human brain, particularly the striatum, which is involved in both anticipation and reward. When you couple this with the stimulation of the amygdala, which helps inaugurate the implications of an event, it is a powerful combination, not too dissimilar to the effects of cocaine. Be careful, both the highs and the lows of Crypto Currency trading can be addictive, if you are prone to addictive behaviour, you have to set rules and let self-discipline be your guide.
Make a plan before you start trading, My revised plan is as follows;
Once per month - Buy, only in bloodbath scenarios (usually Saturday, Sunday) and never more than I can afford to lose without a care.
Once per week - I can go into my wallets and check the progress. I screen dump the content and have a Google doc set up to keep a tally of all orders and movements I take.
Blockfolio - I have set this up to send me alerts, these alerts are very high, so in the off chance one of my investments goes way up, I mean Moon reaching, it sends me a single notification.
Bittrex - I have sell orders that I predict will be achieved within the next year to 5 years. This way because I am not wondering if the coin will be selling in the immediate future, I am not seeking short term gratification.
The Future
I see that two things will affect the market psyche over the next five or so years; the accessibility ease, ie; When user interfaces allow the layman to buy and trade in a few simple clicks, it will rise, as it is now, having to download a wallet, start an account, get verified, buy with a Visa card etc, wait for it to go through, open an exchange account, (yawn), get verified again, return to the wallet, transfer to exchange wallet, wait for it be verified etc… Most people reading this will no doubt be used to this, but for a large percent of the populous, it will be beyond them and put them off. The accessibility issue is like an order book wall, that once breached will lead an army of newbie-zombie traders into to the marketplace to make everyone established richer than astronauts. Those rookie mistakes of buying half way through the bull run, then dumping by the truckload, an hour later in a blind panic will keep the market volatile. Hence why, the smart trader will always go long whilst this nurturing period becomes refined. As the zombies walk into the market with their blind one-eyed dollars, the market CAP will soar as they spew them into blind alleys and hollow coins. Be there, be smart, go long and be a survivor.
The second thing I believe will affect the market during the next 5 years is the clandestine battle for the regulation of Crypto Currency. Since as early as 2013, the U.S. Government were insisting that Coinbase hand over their data on clients to the IRS. More recently Barclays Bank in the UK met with the Government of the UK to ‘bring crypto-currency into play’, this has been translated by many to mean a form of permissive regulation. This behaviour seeds doubt in the future, and fully feel this is why they try to insidiously keep these stories in the press, it is another apparatus that casts doubt in the market. If the truth be known, I should imagine their are a lot of fiat traders throwing serious money into BitCoin and Crypto, knowing one day that fiat will be a physical relic, a museum piece holding archeological and numismatic value.
As you can see, the market and clients are like the esoteric development of the human conscience, ever developing, prone to the mental pitfalls of bias and fallacy, and always welcoming neophytes whilst growing slowly towards something bigger than the initial concept. Whilst the true end to this ‘sine wave’ like journey cannot be seen, nor the movements underneath the visible development, I make two predictions;
Psychologists will study the mental cognitive circumstances of Crypto trading like gambling and will eventually agree it should be considered an addiction.
The Bitcoin market Cap will reach a Trillion dollars by 2020.
My natural concerns about risk and banking regulation are alleviated by the facts that I only invest the amount I can afford to lose. Whilst I may not be driving a Lamborghini to the Moon in the next fortnight, I can rest assured that in the next ten years, I will make either a whopping pension fund or lose a small, insignificant amount. If the Banks fail to regulate Crypto, it will continue to flourish, even beyond the frailties of the human brain and the impulsive desires to short on every cent. As many will agree, the true essence of the crypto market places and the coins, is that they are unregulated, it is risky, it is dangerous but it is exciting and it is ours.