A lot of crypto, be it bitcoin or ethereum, was sold over the last few days and while some of it was sold into other cryptos, the fact that the fall was so broad based it is fair to say most was sold into FIAT. It's that FIAT that I'd like to discuss.
Where has all the money gone?
Currently it is likely sitting in users accounts on coinbase, bitfinex, bithumb, etc. (For the purpose of this let's assume the USDT is FIAT).
The real question is how much of this money will be withdrawn. I contend relatively little. Here's my reasons
- A lot of the money in the market is from new and small investors that got in between the prices of $1k and $20k.
These investors bought in with 'forget about it money', <1% of their savings, money that if lost will not break them but enough that they will benefit from the 1000% gains they've heard of.
They are not cashing out as they have not made or lost enough to worry them. These tens of thousands of people are sitting with thousands in each of their accounts. And the question is not if they will buy back in, it is when and which coins.
- Tax implications will keep a lot of this money on exchanges.
While for most tax territories all that matters is that the asset has changed, a lot of traders are either trying to avoid this or are living in ignorance of the fact.
Which ever it is, it means that a significant number of traders, especial the early investors that have made large gains, are hesitant about cashing out and tend to reinvest.
Again this money will likely find its way back into the market.
If you bought on every 40% fall in bitcoins history, you'd be a rich person. Of course there is no guarantee that this will work this time, but that won't stop a lot of traders reentering after a massive fall.
Again this money will be reentering the market.
How to play it?
Always bet on the bounce. The only hard part of this is when to put in your buys. If you read any of my other posts you see that I pick buy points where I see support on the charts. I also just wing it with some day trading on the day of a fall. I look for RSI getting oversold and overall fall getting past 30%. Then suck it up and buy.
So am I saying it's too late? No, if you feel there is still more money sitting on exchanges waiting to buy back in, then it is usually a good time to buy. I would argue there is still a lot of sticky money on exchanges waiting.
Ok of course there will be an increase in withdrawals and some money has left for good, but my point is that money in crypto is at least stickier than in other markets.
As crypto matures and is more regulated this will likely stop been the case and we will likely see less predictable bounces.
Thanks for reading. I would love any feedback on my theory, is there any merit in it? It is lacking any evidence but is there any logical flaws in it that you can see?
My favourite site for trading is Bitmex, as the future contracts allow for lots of arbitage opportunites and the leverage lets me leave most of my stash safe in cold storage. If you don't already use it and would like to sign up, here is a referral link that will get you 10% off fees and rewards me with 10% of the fees you pay, we both win.
A coupld of exchange sites I also use are binance and hitbtc, I find them about as good as the other exchanges to be honest but these have referal links so I figure I'd shill for them.
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Please do not invest on the advice of a stranger on the internet, only use this advice here as a starting point for your own research, and then if you choose to invest please only invest an amount that you can afford to lose.
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