Part One: The 3 Cryptocurrency Games
This is part one of the series, “How to create a Successful Cryptocurrency Portfolio”, that gives a deeper insight on how to do your own research and how to select the coins that add value to your cryptocurrency portfolio in both the short term and long term.
For the past year we have witnessed the astronomical rise of cryptocurrencies. However, as early investors made money, some investors lost over 50% of their crypto investment during the first month of 2018 alone. Scams in the industry have been on a rise discouraging more people from taking part in experiencing this wonderful technology. This article reviews the games in cryptocurrency trading that new traders need to understand the most before starting to trade.
1. Game of Numbers
The total market capitalization dropped 58% from its all-time high of $826B to close at $346B at press time. Bitcoin, the godfather, saw its return rise to a total of 1900% through 2017 then slump 50% in January. To put this in perspective, if you owned $97 on 1st January 2017, the value of your Bitcoins as at 31st December would be worth around $1843.
However, when the volatility of the return of Bitcoin is compared to other cryptocurrencies such as Ripple, the return is somewhat dwarfed. Some smaller cap cryptocurrencies experienced massive returns in 2017. Imagine a situation where you invested the same amount above in Ripple, XRP which is known for its well-connected ecosystem, fast, worldwide transactions and major acceptance by banks. The coin gained a whopping 38000% in 2017 alone. Let’s do the math - for a $97 investment in Ripple (XRP) at the start of 2017 one would have cashed in $36860 a year later. These are just some of the sweet stories the past year has told us due to this wonder of the blockchain technology.
The first month of 2018 however, has seen a sharp fall in the total market capitalization of cryptocurrencies. A total of $480 billion dollars has been wiped off since an all-time high market cap of $825 billion as at 5th February 2018. Bitcoin and Ethereum, the two biggest cryptocurrencies saw a sharp decrease of over 50% and 30% respectively in the first month of 2018. Some coins have faced even a sharper decrease in price, such as Ripple (XRP) which saw a decrease of over 100% over the past month. Prodeum, a Lithuanian-based coin, created to connect blockchain technology to vegetables and fruits produce, was found out to be a scam costing investors over $50,000.
2. Game of Expectations
Most of these crypto ‘enthusiasts’ and investors dwell in the life cycle of fear-of-missing-out (FOMO) and fear, uncertainty and doubt (FUD). Phrases such as ‘This coin will go to the moon’ becomes common when discussing a coin or token in various media streams. Some traders buy cryptocurrencies with the expectation of X% growth in returns. They choose their investment based on what is trending in the market and what is being highly recommended by shills.
" The FOMO and FUD in the cryptocurrency universe serves a quick happiness and quick death cycle to coins with little or no value. "
These trends and ‘shills’ mostly have no basis on why a particular coin should be bought or sold. This then leads to over investment in coins that are overpriced and hold no significant value. When a bear run hits the market, these coins fail leading to massive sales of these coins due to FUD caused on various media streams.
People who bought the coins so that they could make a major profit, are quick to sell so as to avoid a loss. The prices keep on falling. This can lead to the coin failing even if it creates value in its respective field. The FOMO and FUD in the cryptocurrency universe serves a quick happiness and quick death cycle to coins with little or no value.
3. Game of Communities
Shills also use pump-and-dump groups on various social sites such as Reddit and Telegram to make a quick profit on a coin. This is how it happens. Sometimes the coin doesn’t pump leaving some investors with a valueless coin and at a loss. These shills haven’t done enough research on their own on these tokens to make sufficient predictions yet most of them have ‘a coin of the week’/ ‘coin to watch out for in 2018’ etc. columns in their blogs.
Most of the experts, writers, bloggers and users use their pieces to promote the coin they hold in a bid to push up the price of the coin then dump it. This pump-and-dump strategy only serves to please the early investors and whales in the industry. Other investors (mostly late investors) of these coins end up losing their investments by entering too late or exiting too early.
Understand the game. Do NOT follow the masses, do your own research, have your own principles, trust the team and HODL in coins you find value in.