According to Learn to Trade’s Adam Truelove, trading bitcoin “always comes down to psychology”, and clever bitcoin traders need to actually know how to trade to avoid ending up in a spin. For those closer to retirement, this is especially important.
Speaking on the Nest Egg podcast, Mr Truelove explained, “[If trading bitcoin within 20 years of retirement] you need to learn how to trade properly and learn how to look at things on a technical basis.
“The price is what dictates the price. The price is key. The bubble with … bitcoin, the rise, and now subsequent fall of that, you can make money from that,” he continued.
Calling it a “social proof trading scenario”, he explained that early adopters and those who have educated themselves in how to invest in the bitcoin sphere and what to watch out for have “made a killing on it”.
Correspondingly, those who aren’t as trading-savvy will look for solely social and media cues.
“They're looking to the people next to them going, 'Are you going to do it? Are you going to do it? Oh, well, I'm going to do it. I'm waiting for you to do it. Are you going to do it?'” Mr Truelove said.
“Then everybody jumps in based on [how] they're tapped into the news and these media platforms that really are controlling the masses …Then the market goes, 'Aww. Thanks for that.' And takes it [their money] away from them.”
He said in recent weeks, investors have been stung for waiting too long as bitcoin and cryptocurrencies in general tilt down.
However, he said that regardless – it’s just education that traders need. Mr Truelove argued that as cryptocurrencies become more mainstream, there will be a “massive transference of wealth”.
“Things that we have now won't be worth that very soon. It's just history. There's no point being in any way scared about this stuff. Grab yourself by the important bits and learn how to do it properly,” he said.
He said it’s critical that investors and traders seek qualified advice, read up on the different risks and rewards and avoid going all in to cryptocurrencies.
Markets are fuelled by crowds
Speaking to Nest Egg, CMC Markets’ Michael McCarthy added that while the technology around cryptocurrencies and bitcoin changes, the “human psychology remains the same”.
“A market, is a market, is a market. What we've seen in cryptocurrencies is exactly what we've seen in plenty of other markets at different times around the globe,” he said.
Pointing to bitcoin’s volatile but undeniable growth in price, Mr McCarthy said it has the characteristics of a bubble. While he’s confident that it could burst, he also conceded that the currency could reach $100,000 in value before it does so.
“We know that this [movement] is human nature,” he argued.
“Because the markets are described by numbers, we can be fooled into thinking that they're somehow mathematical, or logical, or scientific. They're not. They're not at all. They're just crowd behaviour.”
Pointing to riots, or a crowd of people helping free a man stuck between a train and the tracks, he said crowds can do good and bad things, and that markets reflect this behaviour.
With this in mind, he said that for experienced traders, crypto-markets are an exciting opportunity, however, “they're going to have to bring all their skills, plus, to this market, because it is like the Wild West at this stage”.
“The listing of the [CME and Cboe] futures contract does allow a lot of players into the market who previously couldn't access it,” Mr McCarthy said.
“Big banks, for example, have no capacity to take credit risk on small, unregistered cryptocurrency exchanges, so they just couldn't be in that game. But now that there's a futures contract, they can be if they want to.”
For traders, that means the market has become deeper and broader. Mr McCarthy expects the more “erratic and extreme” behaviours will subside now that more experienced traders are entering the market.