Whether you’ve been in the crypto space for a long time or you’re just getting started, chances are you fit one of these categories. It’s also likely, if you’ve been trading for a while, that you will have moved along the spectrum.
Because we are not static, and we do actually develop, we could say the market is a reflection of ourselves. Now, with over 10,000 cryptocurrencies, amidst a whirlwind of narratives coming from all sides, positioning yourself is crucial if you want to benefit from this emerging industry.
Speculators & Gamblers
Bitcoin and crypto in general are often warned against due to their volatility, or they are dismissed as serious currencies and assets for this reason. However, volatility is measured relative to a determined time frame. On the 1-minute chart, or even on the daily, volatility can be wild.
Speculators and gamblers are simply betting on their expectation that a certain token will go up, or if they are shorting, that it will go down. Frankly, it doesn’t matter what type of assets speculators trade. They could trade Bitcoin, if they think they have a better chance of trading this market well – for example, because there are plenty of resources and tools around this asset such as Glassnode’s on-chain data.
This type of trader follows the news closely, tries to anticipate price movements based on probable responses to external influences, and unless they are highly skilled (and lucky), unfortunately this type of trader often stands to lose against the market.
Skilled traders may have previously identified themselves as speculators, drawn in by the thrill of trading, but shaped and refined through the pain of losses and mistakes.
This type of trader will deploy mathematics and aim for systematic trading on the basis of a plan or thesis, rather than acting on a whim. Skilled traders may deploy automated trading bots to carry out specific grid trades.
Skilled traders, which may include institutional investors, often trade the crypto markets while keeping a close eye on other key markets such as credit markets or fiscal policies that they know can affect investor behaviour.
These type of traders do not necessarily “believe” in crypto or Bitcoin for that matter. These traders are opportunistic and while some may be Bitcoin-oriented, others may operate with a fiat mindset and simply look at crypto as a volatile asset class to accumulate more dollars.
The battle that we see in the markets everyday, are primarily between the gamblers/speculators and these skilled traders.
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Diversified investors can refer to both retail and institutional investors. While they may differ as to their degree of sophistication, we can expect both to be a bit more mindful about the type of investments they are making.
These types of traders usually engage in swing trades or tend to HODL and even use futures to hedge against risk. The idea here is to place certain assets against one another to limit risk.
For example, an investor may hold Bitcoin, in case their fiat holdings dwindle. In addition, this investor may also hold gold as an extra inflation trade, just in case Bitcoin doesn’t get the expected traction.
These investors seldom stick to one asset class and are more likely to allocate capital to other assets such as equity/stocks, precious metals, cash, real estate and so forth.
For these investors, the volatility of Bitcoin is not as troubling as it might be to the gamblers. Volatility is usually cancelled out by trading different assets. This type of investor is usually looking for sustained moderate growth, with wealth preservation as a key priority.
Diversification is not difficult to achieve, but the idea that simply having a lot of cryptocurrencies in your portfolio is equal to a diversified portfolio is mistaken. Diversification only makes sense if capital is allocated across non-correlated or negatively correlated assets, or if you’re only interested in crypto, then at least it’s important to allocate across themes.
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Ideological Investors/ Maximalists (HODLers)
While we find the culture of HODLing in the Dogecoin community as well, this style of engaging an asset is primarily associated with trading Bitcoin. Plenty of gamblers will hold a coin, saying they will HODL for life, but chances are they are not ideological maximalists, but rather over-confident speculators.
We generally do not suggest anyone to go all-in on any meme coin, or project for that matter.
When it comes to Bitcoin, however, because of its sheer growth, some previously diversified investors have found their portfolio to increasingly skew towards Bitcoin.
Making the jump and focusing all energy and capital on trading Bitcoin ironically seems very risky, from a gamblers point of view. However, as the focused maximalist operates on a higher timeframe, volatility is of little concern.
Skilled traders are able to impact the market, but HODLers, if sufficiently committed are hardly affected. If anything, these participants will wait on the sidelines to buy downwards swings. The prospect of a bear market, to this trader, is welcomed as a way to accumulate more Bitcoin.
Diversified investors might perceive this type of behaviour as incredibly risky, and from their wealth preservation/ gradual growth perspective, this might be true. However, the HODLer, acting on conviction, is not looking for a balanced portfolio.
Bitcoin maximalists act on the asymmetry that Bitcoin offers and rather than investing (which might imply they are looking it sell in the future), HODLers see Bitcoin as their base-layer money.
For these types of participants, there is no “sell”-button. Rather, there is the option to buy and not to buy.
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- AAX Savings where you can earn a yield on your crypto holdings.
- Different types of crypto traders