Mind Games And The Crypto Market: Psychology As 50% Of The Market Driver
During the last month the crypto market finally woke up after a multi-month slumber. However this awakening was not due to excitement before the next bull run, but because of bears squeezing their claws even more tightly. Bitcoin Cash hardfork and its division, SEC postponing ETF-approval together with the transfer of the Bakkt launch date… bad news after bad news like shots made out of shotgun have been striking the crypto community since the beginning of November and creating panic on the market that leads to the price drop of the majority of cryptocurrencies. As it seems there is no light at the end of 2018, what should we all expect from 2019? We had a conversation with the consultant of institutional hedge funds and Bitcoin enthusiast Michael GRAUB to figure out the answer to the question.
BNT: Before we talk about 2019, what do you think of the market psychology in general? On what does it depend?
MG: As it was originally presented in George Selden’s book in 1912, psychology of the markets refer to the "movements of prices on the exchanges are dependent to a very considerable degree on the mental attitude of the investing and trading public". This makes a complete sense to me, as the main topic - human psychology - has not changed at all in the past century. Following a trend is an example of human psychology. While doing my analysis I unfortunately have to listen to the emotional signs of despair and capitulation at this point in the BTC market cycle and this bear cycle will last longer than I even anticipated earlier this year.
BNT: How much time it may last then in your opinion?
MG: I’m probably wrong but this bearish trend will last into the the first quarter of 2020 which is the worst scenario at this point and here’s why. During the bull market in 2016-2017 many new people were drawn into Bitcoin, especially by trading altcoins, which became popular with new crypto trading groups popping up. Not only they were charging monthly fees either in USD or Bitcoin, trading groups all over the internet were promising easy money and returns of 1000% and more, while scammers like @Altrucher, @LandM_Marius, @Clif_High, who have recently moved to patreon.com to continue their deception there, were seen pumping ICOs. I also know some who lurk waiting impatiently for this crypto winter to end so that they can start pumping BS on the next wave of adopters. The market needs to get cleansed from these types of charlatans. As soon as they begin to quit and disappear, we will know we are closer to spring rather than winter.
There is one last psychological setup which could cause a black swan type event. If the US stock market goes in the bearish mood as well, I do believe this will take the entire crypto market down further and longer than most believe. This would be painful but I firmly believe it’s necessary for another Bitcoin cycle to begin. Psychology of the markets is 50% of the battle.
BNT: Will the consolidation of the cryptocurrency market continue and what new institutions should we expect entering the market?
MG: My hope is that Bitcoin continues to increase its dominance and all the “penny stock” aka ICOs disappear since at best most were ill advised and at worse were out right scams.
I think Wall Street is now committed to enter the Bitcoin market and 2019 will be a year to continue to build out the infrastructure for the next Bitcoin cycle which should begin sometime in 2019. I’m hopeful the Bakkt futures will start in the first quarter of 2019 as announced a few weeks ago. We also have NASDAQ futures hopefully coming online in 2019 too. This is all part of Wall Street building out the infrastructure to trade a new asset class of Digital Assets. Whether this is successful or not is still up for debate but the coming years should be very exciting.
BNT: Do you expect traditional institutions take over the digital market in 2019?
MG: Bitcoin’s consensus model makes a takeover by institutional investors highly unlikely as Bitcoin maybe forked if this is attempted. The current hashwar between BCH and SV is an example.
BNT: This hashwar caused a decline in Bitcoin hashrate and miners massively started to leave the market due to nonprofitability of their activity in new market realities. What awaits mining in the future: rapid death or new transformation?
MG: I don’t worry about mining as Bitcoin has a mechanism for a difficulty adjustment about every 2016 blocks to keep the block generation time of around 10 minutes. Back in 2014-2015 some had the same concerns yet here we are today. Miners make money by finding blocks and validating transactions.
BNT: And what about the promising Lightning Network that has tripled in the current month? What development can we expect in 2019?
MG: The pace of development of the LN has been simply phenomenal over the past year. This network started in January 2018 and now has almost 500 BTC with over 16K Lightning Network channels. Elizabeth Stark and her team are doing a fantastic job. Hopefully over the next 12-24 months the software will be coming out for general use. This will make micro payments available on a side chain of the the BTC Network.
BNT: Which type of blockchain will become the future: corporate or public ones? Which investors will they be able to attract next year, if any?
MG: I believe that corporate blockchains will be similar to what intranets were in the late 1990’s and eventually will be abandoned as 99% of these can just be robots sequel databases. We have seen partnerships with a number of blockchains like XLM and IBM but I don’t see this currently going anywhere.
BNT: Finally, which coin do you think will be the most expensive and which will be a leader on the market?
MG: Bitcoin for both. I eventually can see Bitcoin having a “chance” to become the World’s Reserve Currency.
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