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Crypto Trading: A Treacherous Play Where Only Cool Heads Survive

Anastasia Ermolaeva

In the first years of the crypto market development, bitcoin transactions were entirely private. Users conducted transactions between themselves or on the freenode IRC network #bitcoin-otc. In 2010 two pizzas worth $25 were bought for 10,000 BTC this way. Since then, trading on the digital market has undergone significant changes. In order to find out what it means to be a professional crypto trader and what are the current trends on the market, we had a talk with a team of independent analysts of financial markets, who themselves trade on 15 crypto-exchanges.

"Professionals trade on the stock market under license, and in the cryptocurrency market such an opportunity was given to ordinary people. Everyone via their phones can go to a crypto exchange and buy a certain asset, hold it and then sell it. Even some 5-7 years ago, the only trading platform available for non-professionals was Forex”, - points out Vitaly KAMINSKYI.

However, the accessibility of the crypto trading retained the division into the professional community of traders and enthusiasts. While the first ones act on the basis of pure calculations, the second ones operate in accordance with banal psychological laws: if the prices fall, then under the influence of fear goes into the red, the investor begins to sell their cryptocurrencies. "None of them think: “I'll buy it now when it all falls”. And when prices rise and reach their targets, these non-professionals on the contrary begin to hold assets and wait to earn even more. Pure human greed takes place. Emotions are the engines of the market”, - notices Eugene LOZA, director of the company and trader himself, the rating leader of one of the most influential trading communities in the crypto world.

He believes that trading can not be just a hobby, it is a real profession that requires a lot of time being dedicated, and only in this case, trading will start to bring some money: “There are many people who want to quickly generate profit and leave the market. They trade for a week or two, then get tired, forget to put a stop loss, decide to go long and since then they proudly call themselves investors”. But in reality beginners could only earn in case of great luck: "There Is a 90/90/90 rule, which means that 90% of people within 90 days lose 90% of their deposit and I was no exception, although at that time I already had experience working in the investment company”.

The professional can be distinguished by their investment strategy: "He buys large volumes on falls while everyone else sells. The crypto market is cyclical, and all that a professional trader, who plays for the long term, really needs is an favourable entry point”, - continues the trader Eugene LOZA. A trader can calculate this figure using methods and tools of technical analysis, which is widespread on the stock market. Moreover, having the knowledge of the traditional market, a professional has the opportunity to make forecasts and generate ideas about the behavior of a coin and share them with their crypto community and thereby influence the digital asset selected by him: “With their capital and information leverages in the form of media platforms, professionals can do anything with the market”.

Becoming an opinion leader, which will be followed by non-professional market participants, a trader can arrange pumps and dumps and make a profit even on the stagnating market, which is the crypto one at the moment. To his community, which builds up from social networks and specialized information channels, he presents a coin, which in his opinion has the potential to rise or fall and gives a signal. If followers trust the forecast source, they make a trading decision to buy or not to buy the asset on his recommendation.   

"When a trend takes place there are coins that show exponential growth", - explains Eugene LOZA, referring EOS to such kinds of digital assets. So, in early June the coin was showing an increase in value, while the rest of the market was in decline. Positive dynamics were fueled by the upcoming launch of its own Mainnet, which had been expected throughout the entire year. “I already knew that the coin has reached its limits to grow by conducting technical analysis, so I published charts of the future decline, and went short myself. The post has gained thousands of views from professional and non-professional traders. They made an investment decision based on my charts and as a result sold the coin, since not all exchanges provided the opportunity to open a short position on this currency. And the rate collapsed", - remembers the trader.

This chart was published on June 7. Over the next few days, the price maintained the level of 0.0018-0.0019 BTC until June 10, when the long-awaited blockchain was finally launched, after which the coin began to fall, as our expert predicted. On June 13 the EOS rate dropped to 0,0015 BTC, and on June 24 collapsed to 0,0012 so that the price fall reached 35% in just two weeks. "Investors, who were putting capital in EOS at that time, expected that after the launch of the network they would all fly to the moon. But this strategy was wrong. Being the last to jump on the train in hope to reach the final station, you are doomed to a failure. At most that you will be able to get is your leg broken. We need to discover and invest into the financial instruments that no one knows about yet, which have the potential for growth”, - the expert insists.  

Thus, the trader's followers were able to avoid losses by selling the coin at high prices from 7th to 9th of June, and those, who managed to go short like the trader Eugene LOZA, made profits of 35% in just two weeks. Given that, it is worth noting that the community support of the trader's initiative helped him to be in the black as well.

If their joint actions led to a decrease in the currency value, can we call this event a dump? Probably, in this particular case, this statement will not be quite correct, since later on the coin continued its fall, which was facilitated by the constant failures of the new network. But there are fraudulent operations in which the organizer of trading groups intentionally throws an information in order to inflate or reduce the price of a cryptocurrency (more details on this type of operations you can find here).

Hypothetically, the discovery of the fact of participation in such frauds can result in a ban by a crypto exchange, which in practice does not always happen as another analyst of the team specializing in fundamental analysis Sergey ZUYKOV notes: “Recently Binance held a competition for the best traders, assessing the volume and profitability of their transactions. The competition showed that there are traders who generate profits of 750%. We may assume that the exchanges themselves allow the volume inflation, pumps and dumps up to 750%. Social media influencers have long called the market the Wild West".

The expert believes that the rule of the Wild West, which means lack of these rules, works the same for everyone, including venture funds, which decide to participate in the high-risk early stages of financing and ICO for this particular reason: “There is no difference who and on whom makes money. If a venture fund understands that it can earn not 2X, but 150X on this Wild West, then it will also take risks and will not invest 10% of its capital in a startup, but 20-30% - in the ICO. Institutions seem to judge them, but there were the same talks around Penny Stocks. Now, when any housewife is offered to buy Litecoin at $350 due to the news, while the current rate is $50, and Charlie Lee, the creator of the currency himself says: “Sorry, guys, I sold my coins for $350 each”, it is profitable for professionals to earn on newcomers”, - considers Sergey ZUYKOV.

Nevertheless, such situation is possible only in the absence of regulation. In the future, the industry will only grow, and a new stage of development can be already defined by the introduction of infrastructure solutions for professional traders and institutions, such as Bakkt developed by the financial giant Intercontinental Exchange, which owns the world's largest New York Stock Exchange. “Why are the majority of traders still unprofessional on the cryptocurrency market? Well, imagine a situation when the fund asks a trader to manage their $100 mln. He needs to develop an investment portfolio and allocate capital via different assets. And here he faces the problem of the illiquid market. There is no liquidity. If we take the daily transaction volume of $9-13 bln, 80-90% amounts to wash-trade by the bots of exchanges", - indicates the problem the fundamentalist analyst Sergey ZUYKOV.

On the new fully regulated trading platform, only accredited investors and traders will be able to trade futures with the actual supply of Bitcoin, which will exclude the possibility of fake trade. “They are developing this platform for themselves and possibly other smaller funds that have a certain amount of savings. The institutions have a need for new assets and a field to continue playing. They can not go to the same Binance and trade there in a big way, because everything will collapse, and we will be flying to the moon and falling down from it every 24 hours in this case”, - the analyst concludes.

However, all three experts are in a hurry to assure that professional players will not displace private traders from the market: "Look at the volume of modern online poker markets, sports betting, etc. People are driven by emotions and excitement. Since it is easy to enter the market and start trading on their own, passing only through the KYC procedure, the number of traders will only grow. Let’s take Japan as an example, where grandmas in their sixties-seventies invest in ICOs by their phones. There will simply be a division of platforms. There will be a separate space for big players like Bakkt, and for small players like Binance, Bitfinex. The volume of the market will be determined by the degree of its regulation, which is necessary in order to outgrow the “Pink Sheets” stage, and transform into a space where relatively everyone will be guaranteed to have some level of security”, - points out Sergey ZUYKOV.  

Meanwhile, the main investment decisions on the market will be still promoted by opinion leaders who already have their trading experience not only from working in traditional financial companies, but also from operating on the digital market: “The number of influencers will grow, but some of them will leave the market, and a narrower circle of minds will be formed. Even when billionaires give capital to professional traders, they in turn go to the channels of crypto traders and when they see all these charts, ideas, and the number of views they're gaining, psychology works again. Therefore, even independent and not working for any company or fund traders to some extent have an impact on the market”, -  concludes the trader Eugene LOZA.

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