Inside a Crypto Trader’s Mind
The Psychological Appeal of Alternative Trading
The first time your heart get broken is usually the hardest. After that, in subsequent times, you prepare yourself emotionally so, if it happens again, the emotional roller-coaster that comes with separation come with less amplitudes. A few more times and you might even start doing it for sports, as a way of expanding. The same logic applies to those who do extreme sports or stunts. Technically, they get hurt for a living, knowing that the potential monetary and Adrenalin rewards are far more greater than the prospects of pain, which they get used to. The important thing is to keep the capacity to move forward so as to be able to repeat the process and make more gains; in market terms, that is to keep your initial capital safe.
In psychology, such a process is called habituation, or in layman terms, just getting too much used to the status-quo that you don’t sense it anymore. That is until an abrupt change happens and the reverse process of dishabituation occurs, when the senses emerges again to their functions. In a way, the majority of Crypto traders are akin to that; they are the free runners (a la parkour stunts) of trading. They take swing trades with highly leveraged position to make the most out of the extremely volatile assets. They usually don’t care about potentially imminent losses, knowing that they will make up for it pretty soon. Just take a look at any Crypto exchange, especially at the Altcoins, and you will find out that it is perfectly normal for an asset to gain 50% in one day just to lose them the next. This pumping and dumping is only supported, rather behind the scenes, by the minority of long-term Crypto traders who keep the overall price trend upwards, until they don’t.
The Crypto culture is highly based on the religious belief that the Crypto market will always go up. Citing inherent susceptibility to inflation of FIAT currencies (the term used for normal currencies), Kraken’s CEO (Kraken is a major Crypto exchange, for those who don’t know) said Bitcoin’s limit is infinity, strongly implying that Crypto currencies are kind of immune from inflation. This is bulldung. It might be acceptable for a CEO of a Crypto exchange to be ultra bullish, but that shouldn’t pertain that we should mistake its dung for wisdom. The universal governing laws of finance — and even physics for that matter — exposes such a claim as rather an impossibility. — don’t take my word, just google financial cycles and the law of gravity.
Yet the majority of Crypto traders seem bound to believe in such a fairy tale. Driven by their confirmation bias, which, in turn, stems from either the desire of accumulating on their past gains, utilizing the logical fallacy of Appeal to Tradition, or the hope to “break even” their past losses, this time utilizing the infamous Gambler’s Fallacy, they cling to the bullish voices of the Crypto gurus in the echo chamber of the Crypto temple that keeps the common myth ignited. In a face of a clear down turn which implies an imminent crash, they see bullish signals of a super reversal towards the sky. If the prices crash towards the ground, they imagine a giant spring pushing the price further up immediately. In a way, they are like the bulls they associate with: raged by the red signals until it breaks their backs.
Nonetheless, being habituated to the losses, and given the high volatility, many don’t care. After all, they can easily make up for it in the next super bull, or so they think. Perhaps they are not entirely wrong.
When the Crypto market crashes, as it usually does, not everyone is a loser. Almost everyone would lose a bit of his gains, since no one cane exactly time the peak of the trend, but if you find out that you lost more than your initial capital, then it must be one of the following: Either you are an optimistic pig (in market terms, and not meant as a derogatory slur) who thinks that the market will go always in the same direction, or you are a trading juggler who is easily affected by any price movements. Experienced traders, the gurus, follow an adaptive, yet definite strategy of taking quick gains…and betting on the aloofness of their followers.
Next time you see a YouTube video of a Crypto guy promoting a rather obscure altcoin with “1000% potential gain in the near future,” you should immediately filter out the noise of analysis in the video and look straight at the real motive behind: the guy has a long position with a hefty amount of money and wants to pump it for a quick gain. Similarly, when Elon Musk or Mark Cuban are involved, it’s not for the love of freedom. Such a cynical outlook is necessary to understand that Crypto trading is a zero-sum game. If those whales are chasing profit, then it’s usually on the expense of the unaware ordinaries who are worshiping them.
Thus, losers are left to do what they usually do best: finding excuses. Here, the mainstream media plays the main part in disinformation. Given that they are not well knowledgeable about this alternative culture, the “professional” analysts just copy the sentiments thrown on Twitter and elsewhere. If the market falls, then it must be a fault of someone like Elon Musk or somewhere like China. In noway they see the fact that a crash is a long due process of hyper-inflated prices and highly leveraged positions. In noway they see the coupling between the Crypto market and the stocks market as the main reason for the latest crash, that the Crypto market went down with the market until it broke on its own weight, something that will happen soon with the stocks market, albeit to a lesser extent given its lesser weight.
It’s far easier on the mind to buy into a belief of an external force causing disruption to oneself’s system than to believe that it’s because of our own doing. Projection, as a psychological phenomenon was first theorized by Freud who categorized it as a defensive mechanism. People who don’t want to hold themselves accountable prefer to lay the blame on a straw man. This aggravates the matter more because history becomes bound to repeating itself in what is known is finance as the Crash Cycle. If people only knew that the system is rigged and that they are the riggers!
Hence, dishabituation is not so effective on the long run, even though a crash is an abrupt change of the status-quo. This is because of the market dynamics which tend to rebound the price as soon as the whales step back in for another round of gains. Driven by the Fear of Missing Out (FOMO), the rest jumps on the wagon of betting and even more people come. The pyramid keeps on being built until the whales break the base to take profits and the thing falls as a sand castle leaving many biting the dust. And so it goes.
Looking forward, there may be a silver lining in the recent crash and the coming one (sooner than you expect). The Crypto space might become less dependable on Bitcoin in terms of market direction. If this happen, more democratization and decentralization would take place and less coupling with the stock market may be attainable. This could also ease the all-time-highs (ATH) chasing, as volatility would be inherent in the Crypto pairs based on somewhat real supply and demand. For this to happen effectively, however, Crypto currencies should be used as money first and not as money pumping devices. Perhaps, those crashes would help with changing the reputation and, consequently, the utility.
Until then, let’s unfollow Elon Musk and Mark Cuban.
