Cryptocurrencies are some of the most volatile assets that you can invest in. The human nature makes it completely normal to be fearful when you use your hard-worked money to buy them. But the real question is: how does fear translate into market movements? Who determines crypto price fluctuations?
Crypto price fluctuations are basically an increase/decrease trend in the price of coins. These movements can generally be from less than 1% up to a few percents a day. There can be huge wins, but also considerable losses. As they say, no pain no gain.
Some people speculate these fluctuations in order to generate income. As you know, I do not endorse these sort of practices since they make the market weaker. Smarter people buy at low levels, hold, and sell when the prices are high. These requires 0 time, some money, and the ones who really succeed harvest huge returns. The best of the best are what we call “crypto millionaires” – some of them being soon billionaires.
I consider there are only two periods in this market: the bull runs are the irrationally optimistic periods, while the bear ones are when the public experiences fear, doubt and cynicism.
The bull runs have so far been amazing for everyone. Everyone is optimistic because they make money easily and very fast. Developers work on new technologies. It is just as good as the “growing economy” our politicians keep telling us about.
How can one be fearful in this period? You might know the answer. Most people that feel fear in this period are generally of two types: the outsider and the intelligent investor.
The outsider is a person who isn’t currently in possession of crypto, but wants to get in because he has seen the news about people getting rich after buying Bitcoin. Why is he fearful? Because he might miss out this opportunity. This is known as FOMO, or fear of missing out. It is one of the worst things that drives investors into loss. Generally, you can avoid this by having a strong investment strategy, being informed and leaving the arrogance aside.
The intelligent investor, however, is a person who masters the artistic skill of value investing. It has been first called like this by Benjamin Graham, in his book (The Intelligent Investor). He knows everything that is happening in the market, while he fears sudden increases. Why? Because he understands that they might not be sustainable and that any closed economic system is cyclic. He is the most objective person he can be, he leaves fear and cynicism aside and he is 100% rational. He realises it is safer to buy at low levels, than to buy at high levels, and ignores what the media endorses, while still using it to be informed on a daily basis.
The bear periods feel pretty static. Why is that? Because the market is outside of the spotlight. Hardly anyone is talking about it, it feels like it is gone. It is a hard time for everyone who got in at the wrong time, or even for the ones who got used to the massive returns.
The speculators use “short” orders. They basically place their bets on the crypto going down. To do that, they borrow cryptocurrency, sell it instantly at a price, the prices go down, they buy with the money the cryptocurrency and they return the coins. The profit is what is left over.
These short orders are even worse. They make the bear market even bearer, if that makes sense. Crypto fluctuations become a one-way street: down, down, down. People feel discouraged, they sell so everything goes even lower.
It is like the crypto market is digging its own grave. That is why these periods are so worse, that their nickname is “crypto winter”. The fear, uncertainty and doubt that the investors experience is what drives the crypto price fluctuations in this period, creating a down trend.
Crypto price fluctuations are happening all the time. It is important to make a rational analysis of the events in order to take the best decision for your investments.
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