Short-term Profits and Long-term Gains
The cryptocurrency marketcap is taking a big hit right now with governments in China and elsewhere getting serious about shutting down exchanges (or threatening them enough to shut themselves down) under the always-comical pretense of "protecting consumers" until they can get more regulation in place. They are trying to control something which is uncontrollable by design.
Good luck with that.
People will continue to use decentralized exchanges like BitShares/OpenLedger.
As I watch my spreadsheet holdings tank, I started thinking about short-term vs. long-term goals in this space. I got to wondering, do we have misaligned motivations between traders and investors/HODLers?
I'm all about people making huge profits. No problem with that, as long as they are operating in voluntary ways and not harming anyone else. That said, traders are making profits off of volatility. They do well if it goes up or down, if they know what they are doing and how to short the market.
Again, I have no real problem with that, but it potentially creates contrary actions for people with similar goals. Long-term investors lose out in terms of the time value of money. They are hoping for mass adoption and prices in the $10k, $100k, and $1M range per bitcoin. It could happen. It's not out of the question.
However, when traders push the price around, we see a further delay in mass adoption such as most of 2014 and 2015 where the bitcoin buzz died down after it crashed from the all-time-high around $1,200 to around $250. As I've said before, I didn't sell but held, and I'm glad I did.
So, in a way, traders may also be hurting their own long-term profits if they are hindering mass adoption by participating in volatility. For every investor who buys and holds, we get a larger market cap and one step closer to stability and more adoption by those who want stability and an alternative to fiat scam money.
What do you think? Are the short and long term incentives of traders and holders misaligned? If so, what should be done about it? Should holders learn to trade to ultimately increase their holdings, even if that means mass adoption is pushed further into the future? Should traders restrict their own profits and HODL more often as that may be better for their long-term interests given the time value of money and how beneficial mass adoption will be for everyone?
It's possible there is no simple answer, and we'll just have to wait and see what the emergent properties of many individual decisions ends up being.
For now, I'm holding and will continue to look for buying opportunities as my budget allows.
Some further reading, if interested:
- Are You Waiting to Buy Cryptocurrency?
- The Big Question: Should You Sell or Hold During a Market Correction
- Understanding Blockchain Freedom — Why So Many Smart People Are Wrong About the Value of Bitcoin
Good points. And I' m not a bot, I actually read the post. Many people do long term and short term as part of the portfolio....but many of us have a long term vison of holding, then the strategies may vary
I just completed a study looking at the comparison between the global net wealth bands, and the bitcoin wallet size bands. It tooks days of study and hard work.
One of the conclusions is that the fastest growth in number of bitcoin investors over the next 12 months will be in the $100k to $1 million net wealth band. Less than one in one-thousand of this group already hold bitcoin.
I also conclude that over the next year we will see around $5 billion of new money invested in bitcoin. This will have a leveraged effect on the price and market-cap. In other words the market cap won't go from $60 billion to $65 billion, but to a much higher number.
I conclude in that Steemit article that the price in 12 months should be in the range of $7000 to $100'000. It depends on the leverage effect, the velocity of circulation, and the number of free-to-trade bitcoins. As for the last variable, the evidence over the last 12 months is that very few wallets were trading.
Excellent work! For those interested, check it out here:
Net dollar wealth bands compared to bitcoin wealth bands, and projection of cashflow into bitcoin over the next 12 months.
To your comment:
Expecting people to see your content without building a following is like tweeting to no followers. No one will see it. It takes many months and many thousands of comments and posts (I'm up over 8,000 myself over a year) to build a following. If you continue to put out content people value and leave informative comments like this, you will find your follower count grow, but it doesn't happen over night. Good luck!
Thank you, Lukestokes, for the words of encouragement. It's encouraging to have followers. The study was done firstly for my personal benefit to reach a rational conclusion about where the future bitcoin price might go. The evidence is that with much less than 1% penetration rate in all but the highest wealth bands, there is a long way to go. Sharing the study with others is my pleasure. I am glad that you enjoyed it. I also appreciate a comment from someone of your reputation which carries more weight than many of the comments on steemit!
https://steemit.com/trading/@igster/for-those-new-to-crypto-welcome-to-bear-market-and-some-resources-to-cope-with-it
My view on the current market above.
I think we need the volatility. Let's be honest, bitcoin only gains eyes on it when it is making new highs. And for that to happen it needs volatility. The tech is sound and solid and adoption is growing by the year. Those who buy high and sell low will not stop that. Even Bill Gates has said bitcoin can't be stopped.
I personally am a long term investor because I'm a believer in the fundamental technology and mission of blockchain. I promote HODL-ing, but I don't feel comfortable telling people not to try to profit from these fluctuations. I imagine once a larger critical mass of people are in this space, we will not see these massive price swings and the markets will become more efficient. I think we're a ways off from that, but as we approach the $1 T market cap number, I'm hopeful the volatility will tame down.
I agree. Much higher market caps should bring stability, assuming enough people stop believing in fiat currency. If they continue to believe in it, the central bankers will just keep buying up cryptocurrency using money they create from nothing to play with the market for their own advantage.
Great points Luke and you touch on an issue that has always been a problem, trader vs investors. Whether it be an individual stock, or a currency, let's say Steem for example, traders always hinder the ability of an asset to find it's true market value. The pursuit of the "quick buck" will always be the primary goal for some. It's an addiction they can't seem to shake.
I no doubt feel it's a hindrance to the investor if they're not truly committed to hold for the long term. I've often thought what the true price of Steem should be if it wasn't used as a personal piggy bank by some whales and by some traders when Steem gets a little momentum going.
If an asset is not viewed as an asset, but just as a financial instrument, the volatility caused by traders can cause a significant amount of short term disturbance and harm to the price. Short term variance in price can make the most die hard investor's knees shake a bit and question his willingness to hold in the face of present losses. Unfortunately it's the world we live in today, but I do feel strongly that the ever increasing amount of traders do more harm than good in today's market place.
I'm really curious to see what will happen 5 years from now. Thankfully, this comment will be on the blockchain so I know I'll be able to refer back to it and find out. :)
i'm holding bitshares. great info
Nice share @lukestokes
Can i make design for you... You can check sample on my blog 😄
Just for to be friend...
You can do as you please, of course. No one can stop art from becoming. :)
No promises I'll use it though, but I'm flattered at the request. Thank you.
@lukestokes
haha .. no problem ,, i am just trying to build a good network with friends in steemit .. if you are happy, i am also happy
Oh yeah.. Dont forget to follow me back oke 😄
Great post Luke! You are so0o on the right side of history with this one.
Many happy returns to you steemit friend.
Cheers! from @thedamus
I'm very skeptic of long term gains with cryptocurrencies. As long as more and more come into play what is going to keep any of them popular and hold value? I think unless they are backed by precious metals it's just a popularly contest. How do we know bitcoin won't be the next MySpace once everyone moves to the next best currency like Facebook. Sure, huge gains are possible as long as someone is willing to buy but eventually everyone will be buying something different. Just my thoughts. What are yours?
Thank you for replying! I do believe in gold. It's the currency that has been around the longest. I also do have an open mind about cryptocurrencies. But as the video compared bitcoin to facebook, it could also be compared to MySpace. MySpace was the big thing at the time until Facebook came along. I don't believe Facebook will still be relevant in 100 years. Maybe Steemit will take over as number 1! As the video points out Bitcoin is the most secure but what's to say another one of the many new chains doesn't out do them. My opinion is there's no saying. Thanks again for the info and I'll be glad to start following you!
Do you think gold has "intrinsic value"? And if so, why?
You may enjoy this presentation: Understanding Blockchain Freedom — Why So Many Smart People Are Wrong About the Value of Bitcoin
I have no problems with competing currencies because as the technology progresses we will be able to seamlessly trade between them. We could even have auto-balancing local, decentralized wallets which could keep the overall value consistent.
Oops sorry, I replied to myself. I'm new to this but slowly getting it.
What I replied:
Thank you for replying! I do believe in gold. It's the currency that has been around the longest. I also do have an open mind about cryptocurrencies. But as the video compared bitcoin to facebook, it could also be compared to MySpace. MySpace was the big thing at the time until Facebook came along. I don't believe Facebook will still be relevant in 100 years. Maybe Steemit will take over as number 1! As the video points out Bitcoin is the most secure but what's to say another one of the many new chains doesn't out do them. My opinion is there's no saying. Thanks again for the info and I'll be glad to start following you!
I do think a useful/secure aspect of any blockchain is critically important so we may see many projects going away long term, but unlike Facebook/MySpace, many crypto projects are open source and can be adjusted as needed to adapt to changing market pressures.
Interesting, who controls the adjustments?
Who controls any open-source project? It's up to the community consensus and the developers involved. If they do something people don't like, they fork it to start a new project which better fits their goals.