“This time it’s different” is a phrase many analysts and traders use when they’re discussing market movements. Many of us watched BTC print record highs back in October 2017 and scratched our collective heads as to the reasons why.
The hysteria was evident at the time; message boards, forums and your e-mail boxes were littered with pump and dump schemes and marketers trying to get you to buy into the euphoria.
Many of us more seasoned investors dismissed the exponential rise in BTC; from 3,000 to 19,500 inside twelve months as insane. There didn’t appear to be any reason why BTC was suddenly in vogue as an investment option, other than the novelty factor.
Comparisons with the Dutch tulip mania of the 1700s were inevitable. Wise sages also referenced the South Sea bubble and noted that a genius called Sir Issac Newton also lost fortunes when the bubble collapsed, as his positions failed to defy gravity.
However, the capital employed and lost in those market adventures were proportionately minuscule in contrast to the capital destruction Bitcoin experienced from December 2017 and throughout 2018.
Many analysts felt justifiably smug when writing patronising “told-you-so” articles as BTC crashed back down to 6,000 in early 2018. They revelled in their hindsight, claiming they knew the rise was based hope and irrational exuberance rather than sound fundamentals and you couldn’t argue with that synopsis.
The tables turned, from early BTC investors had derided the naysayers as “no coiners”. The doubters could claim that the “crypto-fanboys” had learned a valuable and sobering lesson that all naïve traders and investors need to take on board. Crypto was the ultimate emperor’s new clothes investment; it had nothing to support it except sentiment.
Sure, no one can argue that as a utilitarian and practical concept, all forms of crypto coins aren’t an incredible development. Also, the use of blockchain in its simplest ledger form can revolutionise many aspects of our daily lives. From essential hospital record-keeping to voting in a general election, the possibilities are massive. But for many, the jury was out regarding BTC replacing our physical currency, or “fiat currency” as the BTC evangelists like to term it.
It wasn’t a black swan event that crashed BTC and all the most popular crypto coins in December 2017. The crypto market bubble popped for a variety of rational reasons.; the momentum died, and suddenly big whale investors began to cash out. Various exchanges crashed, and many trading-exchanges, investors and brokers suffered fraud.
Who’d have thought that an actual black swan event would have propelled BTC to record highs during a global pandemic? You’d have to have genius-level insight and foresight to have re-entered the crypto-coin market in March 2020 as the global equity markets crashed.
There weren’t any talking heads and sages on CNN, Reuters or Bloomberg encouraging traders and investors to bet the house on BTC taking out the 19,000 and 20,000 handles by Xmas. But here we are, and this time it does feel different. Why? Let us explain.
It makes perfect sense that in a world in which the average investor is getting an effective negative rate on any savings, they’ll look to diversify and take on board a bit of extra risk.
Although it’s only three years since the cryptocurrency market crash, the industry has matured massively. Many of the novice mistakes are ironed out. Security at exchanges has tightened, more people get the concept, and they like its anti-establishment purpose.
As a safe-haven BTC is also the perfect alternative investment; you can cash out just as in any other market. And brokers and exchanges have made markets in crypto. Meanwhile, the spreads have tightened as volatility has increased, and liquidity has improved. You can also trade and invest just as you can with a micro FX account. However, two arguably three significant faults still exist with crypto trading;
- You can’t get any leverage from your broker, ESMA outlaws it.
- The spreads are incredibly wide.
- BTC can operate in a range of approx 10-15% a day.
Also, close on 5% of investors still control 95% of the bitcoin market.
These are just a few of the reasons why many of us still prefer trading FX and metals and will give crypto trading a miss.
- With the major currency pairs, we can get up to 1:30 leverage.
- With an ECN broker operating a zero fees account your spreads are very tight.
- The range in a pair like EUR-USD is closer to 1% per day.
- The liquidity is generally high.
- Volatility isn’t as unpredictable and generally related to the economic calendar.
If you believe you’ve missed out on the 2020 BTC rise, often described as FOMO (fear of missing out), then you’re not alone. But entering now could be considered reckless. None of us can predict the future; we trade probabilities.
Our FX markets are robust, have a legacy and are good value to trade. You can apply sensible money management techniques to manage your risk. Trade what you know and know what you’re dealing. There’s always profitable opportunities without you needing to become embroiled in mania; tulips or crypto coins.