CryptoCurrencies and Blockchain Technology were not a topic typically discussed before October, most people having only heard the terms once or twice in their lives. For investors, the crypto market’s volatility and grueling bear markets was a huge red flag, turning many off to the idea of day-trading. Simply put, it’s stressful watching prices swing wildly (relative to stocks) every minute. This disinterest changed drastically during Bitcoin’s run in October. After surpassing resistance at $5,000, Bitcoin appeared unstoppable, hitting a milestone every other day. As Bitcoin approached $10,000, the mainstream media began writing up articles, informing the public of the asset class and its incredible success in 2017. This of course, led to the price being pushed up by folk eager to participate in this booming market. New money flowing into the space brought tremendous growth across the board, regardless of asset market capitalization. Since then to early January, the market saw a bull run of a magnitude not felt since the one in June, where assets saw 500% gains in mere hours.
A good question to ask during this mania, “what caused the run?” Market sentiment around the time reveals that the anticipation of a ‘fork’ was a major factor. The term fork refers to when a cryptocurrency is split in two, resulting in a new tradable coin. Usually the way to acquire this new coin is to hold the original in a wallet. Because of this, many were incentivized into buying Bitcoin to participate in this ‘free money’ of sorts. The market bought the asset up enough to reach media attention, and the masses did the rest.
Suddenly every man, woman, and child began discussing cryptocurrencies, feigning expertise in a filed they’d only recently been introduced to. Bitcoin articles began propping up on snapchat, solidifying Bitcoin’s presence in the mainstream. Since then, the buzz around crypto has died down, but not before tossing a good number of uneducated investors in the mix, most of them tricked into buying coins with no future, ultimately destroying their new portfolio. Risk management is a concept that’s never immediately grasped by new traders, resulting in, well, many distraught traders.
Moral of the story? I supposed if there is one, it has to be that jumping on finance related band wagons can be lucrative, but it’s important to practice proper risk management.