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Author Topic: Will Bitcoin's Fate Be Decided By Who Is The Better Daytrader?  (Read 968 times)
Kazu
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April 12, 2013, 11:59:42 PM
 #1

The bull daytrader

vs.

The bear daytrader

Scenario 1: The Bull Daytrader wins.

-> Bubble! Hysteria!
-> CRASH!
'Smart' Bull Daytrader buys low.
Calls it right, price goes up. Daytrader sells.
Calls it right, price falls down. Daytrader buys in again, but since he is a bull, he buys Bitcoins worth his original investment... PLUS his profit.
-> Wash, rinse repeat.
Eventual result: The 'smart bull daytraders' slowly get bigger and bigger portions of all bitcoins in circulation, and as he is buying more each time, trend looks like:
               / 
        /\   /
  /\  /   \/
 /  \/
/

Bull daytrader makes a lot of money, more USD gets pulled in on increasing price & hype, daytrader no longer can push market enough due to increased demand so selling doesn't make sense, bitcoin value increases more, daytrader spends the bitcoins on shit and the bitcoin economy is created.

Obviously there will be a ton of bull daytraders, and only a supermajority of them need to be 'smart.'

Scenario 2: The Bear Daytrader wins.

-> Bubble! Hysteria!
-> crash!
'Smart' Bear Daytrader buys low.
Calls it right, price goes up. Daytrader sells.
Calls it right, price falls down. Daytrader buys in again, but since he is a bear, he buys no more than his original investment.
-> Wash, rinse, repeat.
Eventual result: The 'bear daytrader' slowly accumulates more USD and the fluctuations keep massive amounts of more money from overcoming him. Less 'active' USD each time keeps the price looking like:
 /\
/  \  /\
    \/   \   /\
           \/   \
                  \

Bear daytrader makes a lot of money, pulls his USD out, with sudden exodus of liquidity volatility goes nuts, people run for the hills, confidence dies.  The bitcoin economy is destroyed.

--

So will the fate of Bitcoins simply be decided by who (as a group) is better at daytrading: The bulls, or the bears?

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ElectricMucus
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April 13, 2013, 12:06:38 AM
 #2

Actually no.

Both the "bull" and "bear" daytraders you described have no impact on the market direction. They buy and sell the equivalent each time.

What a bull daytrader would actually do is buying the dips and not selling. While a bear daytrader would short sell the tops, increasing the position each time. But both aren't traders, they are more like true believers/skeptics.
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April 13, 2013, 12:10:20 AM
 #3

Actually no.

Both the "bull" and "bear" daytraders you described have no impact on the market direction.

...

Yes they would.

A 'bull' daytrader would keep his profits in coins, or at the very least, buy coins with his profit on a dip, while a 'bear' daytrader would keep his profits in USD, slowly eating away at the bull's USD in the exchange.

In the first scenario, the purchases are growing and growing in size. In the latter scenario, the bulls end up with less and less money and the purchases shrink over time.

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April 13, 2013, 12:13:43 AM
 #4

Actually no.

Both the "bull" and "bear" daytraders you described have no impact on the market direction.

...

Yes they would.

A 'bull' daytrader would keep his profits in coins, or at the very least, buy coins with his profit on a dip, while a 'bear' daytrader would keep his profits in USD, slowly eating away at the bull's USD in the exchange.

In the first scenario, the purchases are growing and growing in size. In the latter scenario, the bulls end up with less and less money and the purchases shrink over time.

Then you described it the wrong way.
Quote
Calls it right, price falls down. Daytrader buys in again, but since he is a bull, he buys Bitcoins worth his original investment... PLUS his profit.

that should mean
"Calls it right, price goes up. Daytrader sells in again, but since he is a bull, he sells no more than to get back his original investment. "
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April 13, 2013, 12:15:16 AM
 #5

Seems to me like the sentiment among traders is to make as much USD as possible, not Bitcoins. I think those who are bullish in the long term are more likely to just hold while those who are in it for the short term to make a quick buck are more likely to day trade.

Do as thou wilt shall be the whole of the law.
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April 13, 2013, 12:16:29 AM
 #6

I think a lot of people mistake bulls and bears for types of people.  Most day traders are bullish or bearish based on price and value.  Under $100 and I'm pretty bullish.  Over $150 now I'm bearish.  A month ago I'd have been a bear over $100 without all the new media attention and accounts.

I'm a bull on BTC and always have been long term.  Short term though it changes fast.   I think the permabulls and permabears or either short-sighted or have some inside information they haven't shared with us.
Kazu
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April 13, 2013, 12:17:20 AM
 #7

Actually no.

Both the "bull" and "bear" daytraders you described have no impact on the market direction.

...

Yes they would.

A 'bull' daytrader would keep his profits in coins, or at the very least, buy coins with his profit on a dip, while a 'bear' daytrader would keep his profits in USD, slowly eating away at the bull's USD in the exchange.

In the first scenario, the purchases are growing and growing in size. In the latter scenario, the bulls end up with less and less money and the purchases shrink over time.

Then you described it the wrong way.
Quote
Calls it right, price falls down. Daytrader buys in again, but since he is a bull, he buys Bitcoins worth his original investment... PLUS his profit.

that should mean
"Calls it right, price goes up. Daytrader sells in again, but since he is a bull, he sells no more than to get back his original investment. "

Buying 1 Bitcoin, selling 1, then buying 1.5, is going to have the same effect in the long term as buying 1 bitcoin, then selling .5, then buying 1. The former will just cause greater volatility.

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April 13, 2013, 12:19:45 AM
 #8

Read it again, what you described as a bull daytrader is actually somebody who is interested in the maximum on profit while taking the greatest risk. It's the all in/all out strategy.
One can only affect market direction by keeping profits in either bitcoins or dollars.
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April 13, 2013, 12:22:57 AM
 #9

Among other things, a market is a straw-poll on the valuation of a good, where your vote is weighted on the capital with which you're willing and able to back it up.

You've described one scenario, in which people with confidence in BTC and people without confidence begin with equal amounts of money. In such a scenario, over time the smarter ones would make money on the market, and their votes would thus become stronger. However, the implicit assumption that the participants' gains in this market outweigh any other capital they might possess... that's far from an ironclad assumption. Many of the people involved in BTC trading are getting much of their capital from elsewhere.

Then again, even if it was true, I think your endgames are dramatically overstating the impact of market fluctuations. If people were playing around with bitcoins back when they were worth a couple cents apiece, why would those people ever abandon the project? If bearish investors pull out, someone else was holding the BTC, so why does the "smart bull" scenario have a bonus on "people use their BTC for something"?

The future of Bitcoin will be decided by the quality of the infrastructure, not ticker games.

If there is something that will make Bitcoin succeed, it is growth of utility - greater quantity and variety of goods and services offered for BTC. If there is something that will make Bitcoin fail, it is the prevalence of users convinced that BTC is a magic box that will turn them into millionaires, and of the con-artists who have followed them here to devour them.
Kazu
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April 13, 2013, 12:32:35 AM
 #10

You've described one scenario, in which people with confidence in BTC and people without confidence begin with equal amounts of money. In such a scenario, over time the smarter ones would make money on the market, and their votes would thus become stronger. However, the implicit assumption that the participants' gains in this market outweigh any other capital they might possess... that's far from an ironclad assumption. Many of the people involved in BTC trading are getting much of their capital from elsewhere.
Although they might possess other capital, its very easy to 'play with the houses money' or 'risk your original investment again'. You've got to overcome a lot of inertia to deposit MORE money.
Quote
Then again, even if it was true, I think your endgames are dramatically overstating the impact of market fluctuations. If people were playing around with bitcoins back when they were worth a couple cents apiece, why would those people ever abandon the project? If bearish investors pull out, someone else was holding the BTC, so why does the "smart bull" scenario have a bonus on "people use their BTC for something"?
Because the bull keeps his Bitcoins (because he thinks the Bitcoins are the future) he's got to spend them on something, as thats where his profits are going to. When people earn money, they tend to spend it. If he earned bitcoins, chances are he plans to spend them.

Obviously there isn't a single-uber-bull and a single uber-bear that will decide the conflict. There are tons of 90% bears 10% bulls and tons of 90% bulls and 10% bears. Its very unlikely to be a hard-fast split like I have examined. But the same concept holds. If the people that are more bullish than bearish earn money, while the people that are more bearish than bullish lose money, then the future is bright. If the people that are more bearish than bullish make money, while the people that are more bullish than bearish lose money, then it doesn't look so good.

Since there doesn't seem to be any monumental influx of funds since the crash, and the flight of funds seems to have finished for the most part, I can see this model taking hold.

Obviously, the bigger the difference between funds coming in and funds going out the less accurate this model is. But in the long term, I expect this effect to matter more than many people seem to think.

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