If you are relatively new to the market and looking to get acquainted with the cryptocurrency basics, you might read about economists with little knowledge of virtual currencies who explain that the cryptocurrency market is driven by real-world macroeconomics, supply and demand, and various other things taught in universities across the world.
Anyone with an ear to the ground in the actual cryptocurrency market will tell you a different truth: it is driven by people. Fear of losing, fear of missing out, and hype are the motor factors here, and all of them are created by traders, investors, marketing people, founders, shills, crypto-fans etc. Studies have shown that the crypto market pretty much lives a parallel life, in which in-market hype is a much stronger incentive than out-market recession, for instance. There’s cryptocurrency basics taught by professors, and cryptocurrency basics taught by the market. Always believe the market.
The crypto market is made and driven by millions of people moving virtual assets across exchanges. While earlier this year surveys estimated that around 8% of Americans own some form of cryptocurrency, they did not account for the numerous institutions – banks and investment firms included – that hold billions’ worth of crypto assets. Compounded by unknown numbers around the globe, especially in China, Japan, Western Europe, South Korea, and Russia, the market is likely to be in the neighborhood of 50M people. Figures are especially hard to come by, since crypto ownership is not localized: as the same cryptocurrency basics will tell you, cryptocurrency is pseudonymous. When an individual wallet makes a transaction, you do not automatically see the IP associated with it, for instance, so the only possible stats come from local fiat currencies transacted against crypto on crypto exchanges.
In the crypto market, everyone is a buyer, a trader or an investor. Once you have a Bitcoin or Ether or Monero or Steem, you will have to decide what to do with it. You can buy a product or service. You can trade your coin. Or you can invest it.
If you’re a buyer, you’re in and out of the market in a flash, and your impact is insubstantial.
But let’s say you’ve decided to get into the crypto market for real. Now what?
The obvious question is: long-run or short-run? In other words, you need to decide if you are going to invest or to trade. Ask yourself: can you afford to put away a sum – say, $5,000 – and just forget about having it for two, three, five years or more? Are you prepared to do that several times over the next years? If so, you should invest.
Investors are aware that, if the current trend continues, in 9 years half the world will be using Bitcoin, as Woobull charted. Of course, that’s wild speculation and cryptocurrency basics will tell you not to pre-judge the market. A million things, big and small, could curb that trend. But investors are in it for the long run on the assumption that, more often than not, trends will not be out-and-out wrong. Something along those lines will likely happen at some point in the future, and then investors will be ready to sell the new money to the new world.
Investors need to be interested in the quality of the crypto they’re buying. For that, it’s not enough to follow market trends before you buy: you need to be familiar with the project and trust it to continue over the long run.
Traders, on the other hand, can make smaller amounts with higher frequency by closely monitoring the market and learning or devising algorithms for detecting major market adjustments. Cryptocurrencies are notoriously volatile, and prices can go up 300% YoY or down 50% from one day to the next. You need to be familiar with cryptocurrency basics in general, such as blockchain technology and ICOs launching interesting coins, as well as with the specific coins you’re holding, the companies and projects behind them, and brush your teeth or eat your lunch with an eye to the crypto prices. But you do not need to be truly invested in the projects you’re trading. True quality over the long term is not an issue, since you are not planning to be around if and when the product fails.
Traders, in addition to being constantly on their toes, need to be able to read charts and market trends and stay informed on new projects, protocols, forks, and developments that could tip the market. For them, cryptocurrency basics are not enough: they need to know trading inside out – long and short trading, scalping and all that, plus some technical analysis.
In other words, if you’ve got the hyper energy and appetite for adventure, trade. If you’re interested in diversifying your store of value portfolio, invest: do your research over a few weeks or months so you don’t buy at a high, then move in. Then, cryptocurrency basics (in other words, market experience) will tell you to wait and not panic at the first drop.
Either way, a trader or an investor, congratulations: you’ve joined the ranks of market-makers.