Bitcoin: understanding the volatility and why not to worry

in #bitcoin6 years ago (edited)

Obviously, the price of bitcoin has fluctuated greatly. Right now we are dealing with 6 types of people which I will explain how this is causing the volatility of Bitcoin. However, I will also explain why this isn't going to affect the Bitcoin user.

  1. the believer: the person that has fully accepted blockchain technology, probably working on something related to it right now, and has been owning Bitcoin and using it.
  2. the hesitant believer: the person that has believed in the concept of Bitcoin because of the understanding of blockchain technology. However this person doesn't believe the possibility that Bitcoin would be used until now.
  3. the stocker: the person may have very little concept on blockchain and cryptocurrency. However, this person sees that there is money to be made and only wants to buy to sell for profit of USD dollars.
  4. the curious: this person doesn't understand too much but it starting to become curious on the idea of cryptocurrency. It will eventually lead them down to the rabbit hole of blockchain.
  5. the non-believer: This person is self explanatory
  6. the crusher: this person doesn't want bitcoin or blockchain to happen because it means they will lose power over whatever blockchain can eventually take over.

So how do these people effect the price of bitcoin? Here's what I believe. The price is going to steadily go up because of the believers, the hesitant believer, and the curious. The price spikes and downfalls are caused from the stockers who are purchasing Bitcoins and selling them right away when they have gained x amount of dollars gain. The stockers will always be there...for now which will effect the hesitant believer and the curious. The stockers will make the crushers nervous because they want non believers to never become the curious. The stockers are going to make bitcoin seem more of a commodity so the curious are really confused as the stocker is helping the argument that bitcoin is a fantasy.

But believers, hesitant believers, and the curious can do something to help make bitcoin stronger. USE IT. When the stockers create a huge spike ( yes you will know because it will go so rapidly fast) if you currently have Bitcoin right now....Buy something using bitcoin ( especially with the price spikes). But when the prices stabilizes it represents the worth of the many that do believe in it. Right now overstock, subway, Zynga, new egg are a few companies that are accepting Bitcoin. If every single bitcoin holder purchases one subway you will create more friction and the cause to use cryptocurrency. It will make curious people pay attention to it harder. So use it!!!! At this point that $5 worth of Subway sandwich you purchase will pave the way for the cause of cryptocurrency. Bitcoin users can all by martyrs!

In any case this applies to whatever cryptocurrency you believe in let it be either ether, litecoin, ripple, etc.

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Hello and thanks @theminimalists . Are you able to do some research and give us an idea of what percentage of bitcoin trading is already being done by trading robots? The answer may be hard to find; but the question will become more and more important as Big Boys (traders) enter the space.

Second, this volatility points to a deep problem in the crypto space -- inadequate liquidity. With suitably large ranks of bidders and offerors doing the trading, you could easily absorb large volume spikes without whipping the price up and down by 10%+ in a a few hours.

Pension fund managers and custodians of mutual funds responsible for millions of dollars of "mom and pop" money are not going to be interested here until the volatility dies down to more decent levels, IMHO.

You bring up an interesting point on trading robots. As I am typing this the last price of Bitcoin has substantial gone done within the thousands (so within the hundredths it's extremely volatile). Although I don't know the numbers of trading robots I think by looking at the numbers when the spike had hit into the 11k and continuing to go up from a traders' point of view the opportunity for money to be made was inevitable. The highest point has been in the 19k and it's currently moving up and down in the 14ks. Anywhere between those numbers traders have been making money. If it steadies at around the 12k-13ks then things are looking good because it tells me that the numbers of actual users are putting their belief into cryptocurrency.

In war there will always be casualties and someone is gaining or losing, especially those that look it like a stock. When it went up $17k and now down $14k they are kicking themselves thinking they lost $3k. While true if they brought in at $17k it definitely looks that way but that is also not looking at the big picture.

I guess what I'm saying is not to worry about the robots. They will destroy someone's belief in the cryptocurrency system because as human beings we are emotional.

This is why I've advised anyone buying cryptocurrency, especially those buying at the hundredths to not look at it as a quick investment. It's not worth the emotional ride, especially if they are looking to cash out quick. However, I do try to convince them to buy to try and make a transaction to see how it can be used for tangible goods. It gives them a glimpse of what the future will be like.

But this does leave a small vulnerability that over time will correct itself because of traders. Because it makes complete sense in their point of view and I don't fault them b.c. if they have ten thousands of dollars to place and make thousands within a few seconds & minutes it's a very good trade.

Thanks a lot for your helpful remarks @theminimalists. I too am watching carefully to see if support holds just above 10K (indeed I am planning to put some new money into that pot somewhere between 14K and 10K, on the guess that the support will hold).

I share your view on not worrying about the robots based on an observation made when I was trading among them in the stock market. They will ‘do their thing’ within wide trading bands (pricewise); but those bands can sometimes fall within progressively rising (or falling) plateaus (for the short to intermediate trend curve), so that if you are going long and the plateaus are rising you just have to get on board and ignore the robots' games, as long as you realize it may be many months/years for your price to bring your serious profits. (That is, you will have to wait until the robots' trading range to be on a plateau far above the one that was in place when you got on board.)

RE. “However, I do try to convince them to buy to try and make a transaction to see how it can be used for tangible goods. It gives them a glimpse of what the future will be like.” I feel that you have touched on bitcoin’s (or the crypto space’s) killer app here -- society gradually evolves so that a wide range of real goods and services can be bought and sold without having to cross the bridge between crypto and fiat. Japan seems to be leading the way on this.

Why is this a killer app? For the first time in world history ordinary people can create sums of money large enough to power an entire economy, as long as the 'rest of the world' builds a strong network support around that money. That creation used to be one of the Kings Royal Prerogatives (at least until Our Great Central Bank snatched it away from the King)!

Integer units of bitcoin will not provide a platform for that to happen (even with lightning fast transactions); but what if the price rises to $100,000+ for one BTC? Then you could run a big economy by using fractions of 1 BTC, I think.

Jim Rickards has made this point at various times in response to the argument that the world’s economy could not be based on gold. His response is “all you have to do is raise the price of an ounce of gold high enough”. The problem with gold, of course, is that we can’t trade around fractions of gold -- which, my friend, is another part of the bitcoin killer app!
Cheers!

Thanks for all the gems of info! I'm glad you are part of the community. I feel I am going to learn very much from you! As we speak many coins are being brought so make sure to diversify! I bought some more with the dip and it just went up. I think this pattern is going to keep up.

Thanks for your continued encouragement @theminimalists. I have already learned from you!

As a coincidence, I found myself thinking today about the matter of what trading among the robots entails that should concern us. I had the idea from my stock market experience; but did not express it.

It is that if you are short-term trader, you will find they use "different principles" to set up and execute trades (plus infinitely greater speed and consistency) than we humans do, so those of us in the crypto sphere who have grown up on how the trading scene looks when only humans are in the game are in for a shock.

I say “shock” because the Big Boys now coming into the space are surely bringing along trading robots, and you are no doubt aware that the more sophisticated of the robots are frighteningly smart (as traders). For example, they can adjust their programming code on the fly.

The robots drove me out of the stock market -- I gave up trying to deal with them, as I was not a buy-and-hold participant. (This is contrary to my strategy in the cryptos -- here I study carefully and try to find a mix positions each for which seems to promise a good shot of bringing big rewards years from today. So now I change settings only when I think I made a strategy error earlier on with a specific holding. And, as suspect you do, I make sure that I can sleep soundly if I lose 100% of any one position.)
Cheers!