This article originally appeared in City A.M.
The other night, while on my terrace, sheltered under a flimsy tarp, I had one of those ‘moments of insight’ (it seemed meaningful at the time).
Rain poured from the sky in volumes exchanges can only dream of with the local weather observatory classifying the storm as ‘black rain’. Waiting it out, I stumbled upon a YouTube video which showed some astronauts floating around while doing repair work at the International Space Station. Stretched out behind them, I saw Earth.
Dense clouds loomed ominously over this part of Asia, but unlike the chaotic reality on the ground, from up above, the world seemed unalarmed, calm and serene. Indeed, from this vantage point in space, literally and figuratively, all things weigh differently.
Gauging the mind of investors in crypto
The same perspectives co-exist in the crypto space as well.
Those capitalizing on volatility and short-lived opportunities engage in day trading and scalping. They are perturbed by sudden dumps and euphoric during rallies. Aided by technical analysis, this style is largely intuitive and, especially on highly leveraged derivatives markets, presents considerable risk. This includes arbitrage trading, where savvy opportunists look for price discrepancies across jurisdictions and pairs.
This is also the mode of engagement where whales are able to exert a disproportionate amount of influence. Especially since after the market crash in March, there have been quite a few (some would say fishy) instances of sudden techtonic price-quakes, followed by prolonged periods of indecisiveness.
BTC/USD, hourly candle, 2-6-2020. Source: tradingview.com
At the other end of the spectrum, long term technical traders and HODLers are more focused on the fundamental principles underlying crypto assets. Considered from a macro socio-economic perspective, these investors pay attention to larger cycles of growth and decline, risk of inflation, encroaching surveillance, and other factors that pertain to privacy, liberty, and trust.
In my view, both perspectives are heavily influenced by the 2013 and 2017 rallies, where prices rapidly rose by 7,976% and 2,866%, respectively – giving birth to a new class of Bitcoin millionaires. Of course, there is nothing wrong with the bullish expectations this has introduced into the space, and there is no denying that Bitcoin has been an exceptionally successful asset in terms of returns over the past decade (+9,000%). But with an asset that relies so heavily on sentiment (perhaps more so than real-world utility at this stage), I believe the space would benefit greatly from a more disciplined and measured approach to things.
For this reason, with AAX, we’ve been very committed to developing educational materials and driving a critical discourse to aid our community in developing a stronger and more sophisticated trading culture.
Seeking higher grounds
FOMO and FUD are powerful drivers of price action, but allowing ourselves to be led by these emotions puts us at a disadvantage; especially as more sophisticated and high-net-worth traders enter the space and leverage their capital to move the market in their favor.
Also, how often do we see price predictions for Bitcoin where we’re told that the original cryptocurrency may climb to $75k within weeks, or even a million dollars? Is anyone still reading those articles? What type of investors do we attract with this type of messaging and who benefits? These are not rhetorical questions. I am actually curious, and perhaps there is great value in sensationalism in drawing attention to the space.
However, rather than passively relate to Bitcoin in terms of a lottery, where the hope might be that one day the fiat economy will collapse and all people sing Satoshi’s praise, the beauty of our industry is that all of us can play an active part in promoting, innovating and expanding this new asset class – and many of us do!
Unlike with fiat, this is not a situation where we ought to wait for policy makers, regulators or political will. Very practically, mainstream adoption and consistent price appreciation is going to depend on our ability to educate ourselves and persuasively contribute to public discourse – rather than shun it – and on our efforts to raise the critical infrastructure needed to safeguard market integrity, security and technological resilience and efficiency.
This is not about choosing one perspective over the other.
In fact, whether we’re dealing with topical issues such as climate change, partisanship, racism or an overly centralized economy, real effectiveness lies in our ability to be cognizant of both perspectives at once. It is about understanding the significance of seemingly small acts in the larger scheme of things; it’s knowing that some things change instantly, but big changes usually play out over the course of generations.
It helps to better interpret sudden price movements in the context of larger trends, as well as gauge the readiness of our industry as a whole in terms of mainstream uptake.
From Ideals To Reality
From our point of view, as an exchange operator, it means being responsive to the needs of both types of traders (and those in between), and really creating the right conditions for growth.
For short term traders, both retail and institutional, a liquid order book, quick order matching, price accuracy, ease of use, dedicated customer support, and in some cases direct market access, are crucial. We see increased participation from professional market makers, low latency trade systems, the implementation of market surveillance tech, increased reliance on external market data providers and more attention to technical indicators, as important drivers of growth and maturity.
For long term investors, professional custody solutions, deep research, proper client on-boarding procedures, licensing, organizational transparency and regulatory clarity are all vital to increasing participation – especially from institutional investors who are more tightly bound by protocols and formalities.
Today, we stand at a crossroads: right after the third Halvening, in the twilight of a global pandemic, amidst widespread geo-political turmoil and popular unrest.
These seem like the right conditions for a break-through, but if we don’t want a new all-time high to be followed by another cold, teary crypto winter, there is more work to be done.