While cryptocurrencies are a new asset class, creating fresh financial opportunities powered by Web 3.0 and turning old paradigms into confetti, what remains the same are the emotional mood swings of the market.
In this briefing, we'll share our insights about the crypto's behavior for 2022 and factors to consider if you're hodling versus trading. We decided to let the market unfold for a few weeks to capture a few more data points before publishing.
Being in crypto means accepting that volatility is simply a reflection of hundreds of millions (soon to be billions) of global buyers and sellers shifting back and forth between extreme fear (0) to extreme greed (100), as seen in the chart below dating back to 2018.
And when emotions approach extremes, a reversal is necessary to bring sanity back to the market.
Giving us the lesson - nothing stays the same forever. Market emotions are constantly in flux. While this is true for all financial markets, it's viscerally felt in crypto, as it trades globally 24/7/365.
Therefore, as in all financial markets, seasonal patterns of expansion (bull) and contraction (bear) are expected and planned for by our team.
Many crypto participants are usually caught off guard and find themselves on the wrong side of the market, when it reverses its current trend. The intuition they had last week about the new ATH is faced with the reality of an "out of the blue" blood bath.
And then the death threats and bearish cries ensue. All the perma-bears laugh, "I told you so! It's all going to hell. Short to zero!"
During this time, perma-bulls smoke hopium by the kilo, consult the stars, moon, and Twitter, as they look for any signal of hope that a short squeeze will rekt the bears party.
Either side of this narrative becomes a cacophony of noise, indecision, biased analytics, and hive mind irrationality. Best to keep a safe distance and allow machine learning and artificial intelligence to signal the true direction of money flow.
Soon we'll share with our paid members real-time onchain intelligence – Over 70+ metrics harmoniously providing actionable and proactive Risk-On/Risk-Off signals about macro-trend reversals in the crypto market. We call this powerful intel Smart Monie AI.
A quick story about competing goals.
Two people buy into an innovative project that's doing all the right things to grow its user base and price. They both buy at $1.
Crypto Twitter catches onto the project, loves it, and all the price predictions start pouring in...
It's going to the mooon! 10X incoming! $35 by the end of the month! Easy 20X! This coin will melt faces!
Behind the scenes, sitting alone in front of his laptop, Buyer A wants a 3X return in the next few weeks, as he has bills to pay and a lifestyle to fund, now!
Buyer B is excited about a potential 20X return and convinces herself this is a long-term play, so she's going to hodl and plans to cash out in a few months.
So where does price go, knowing these two buyers have different goals and exit strategies?
If euphoria and greed are strong enough, the price can hit both of their goals.
Now the million dollar question is will they take profits when their goal is reached? Or will FOMO mesmerize them into disregarding their plan to embrace gambling mode?
If greed is only strong enough to get to 3X and then fear kicks in, only Buyer A wins. Buyer B is left hoping and waiting for a return, that may not happen anytime soon or ever.
If greed is only strong enough to get to 1X and then fear kicks in for a massive sell off, both buyers end up disillusioned and with less money.
The lesson is that with billions of competing desires in the crypto market, group- think / hive mind / herd mentality is a nightmare waiting to happen to the unprepared trader, as the group is prone to buy high and sell low... all the time.
We've all been there, done that, and invested the time to craft a better way.
About twice a year, our team re-listens to Alexander Elder's audiobook The New Trading for A Livingto remind us to think and respond as individuals in the financial markets, since herd mentality can all too easily jeopardize our financial futures and emotional well-being.
For 2022 and beyond, thinking a strategic individual and using Smart Monie AI to reveal underlying market weakness or strength will be essential, as more competing desires, emotions, motives, and economic disruptors enter the market.
Why do most traders lose and wash out of the markets? Emotional and mindless trading are big reasons, but there is another. Markets are actually set up so that most traders must lose money. Markets need a fresh supply of losers just as builders of the ancient pyramids needed a fresh supply of slaves. Losers bring money into the markets, which is necessary for the prosperity of the trading industry. The public wants gurus, and new gurus will come. As an intelligent trader, you must realize that in the long run, no guru is going to make you rich. You have to work on that yourself. To win in the markets, we need to master three essential components of trading: sound psychology, a logical trading system, and an effective risk management plan. It is hard enough to know what the market is going to do; if you don't know what you are going to do, the game is lost.
― Alexander Elder
For all subscribers (free + premium), we've outlined below our research and analysis about how we're strategizing for 2022.