Market Fluctuations in Crypto
Cryptocurrency’s trade in a different manner then stocks and with the rise of new coins hitting the market they sometimes trade in a way that cannot be predicted. So many things can and do affect the way a cryptocurrency trades but in the end, all that really matters is supply and demand. When a new coin hits the market, its volume will spike briefly from people trying to get into a position before the coin finds its true price. Depending on what market a new coin lands on and how that coin is launched will depend on how it settles into a price. If the coin is presented in a way that it hits market at its lowest point and then rides the price up people will buy up volume to try and grab coins at an unbelievable price before the coin finds its level ground. This can be a big risk for investors because, so many crypto investors are waiting to do this that research and seeing a solid foundation before investing can be very hard. The reward if you manage to get into a coin really early and it does well is huge though and can make 10x 100x or even 1000x your money in a very short period of time. Also, a coin can be presented to a new market in a way where coin holders that are on market first will put in sell orders at a much higher rate than they think the coin is worth and slowly add sell orders at a lower rate until impatient investors eventually buy because they think they will miss out. No matter how this is done a new coin will see a peak right away from the initial supply and demand theory.
In the few months following the introduction of a new cryptocurrency to the market a lot can and most likely will happen. People like to gamble or take chances that could lead to large profits, so the very beginning of a project is the perfect environment for large spikes in volume and big dips from panic selling to take risk elsewhere. On smaller exchanges this leads to a perfect environment for whales or large investors to make a lot of money. Here is why.
Volatile markets let big investors manipulate the price to accumulate.
Whales will intentionally push down the price as far as they can now and when supply and demand is close to exhaustion they will buy everything they can.
Whales have a lot more financial backing to have funds invested long term without needing those funds for other investments.
Whales are smart they know that the average crypto investor only cares about a project if its making them money. They also look deeply into a new coin’s project and team and for the most part can judge basic future value based off the knowledge they gain from their research.
The most important thing to remember is that a projects value in the first stages of market is never based off the market price. True value of a coin is based off the project itself in these early stages.
Ok let me explain this a little better.
A snowball salesman selling snowballs in the desert for $100 USD and a well digger both approach an investor to secure funds to grow their business. The investor asks them both why he should invest in one over the other. The snowball salesman says that he has sold out of snowballs every day since he started. The investor asks him what he would use the investment money for and what his plans for the future are. The snowball salesman says that he will buy more coolers and have someone help him to bring more snowballs every day to sell. The snowball salesman tells the investor he has made $5,000 a week selling snowballs and that for every cooler he adds it will be $5,000 more a week. Now the well digger approaches the investor and tells him that he is digging a well. The investor asks him what he will use the investment money for and what he plans for the future. The well digger proceeds to explain his business plan to the investor. He tells him that he will buy a snow machine with the investment money and that he will also buy a water purifier and will work on ways of turning the water to steam. The investor asks the well digger how much money he has made, and he answers none. The investor now steps back and watches the two-business run. He researches everything about both sides and the area they are in. he sees the snowball salesman making so much money. Finally, the investor approaches the well digger and invest into his business. The snowball salesman is furious and tells the investor that he has missed out on so much profit but the investor chuckles and walks away. The snowball salesman makes a ton of money over the next few weeks and eventually buys more coolers for more snowballs. The snowball salesman keeps adding more and more snowballs and is flourishing. The well digger digs his well and adds his snow machine which takes him a long time to complete. The snowball salesman keeps growing and adding snowballs to his business. When the well digger is done he offers the snowball salesman a partnership to buy his snowballs right here locally. The snowball salesman declines. The well digger tells him to be careful that nothing last forever. When the well digger starts selling his snowballs the desert has more snowballs then people need, and the market becomes split between the two businesses. The snowball salesman starts losing snowballs from melting since after everyone buys a snowball they do not want more for hrs. The snowball salesman then must go and collect more snowballs to sell. The time that he is gone the well digger always has snowballs and makes all the sales without any waist. The investor is happy, but the well digger says watch and wait. The two businesses go back and forth for some time but then something happens. The weather starts to change, it starts to rain more frequently, and the temp starts to get lower. The snowball salesman panics and has no idea what to do. The well digger on the other hand planed for the future and worked hard over time. He had cases upon cases of purified water and had steam heaters and cookers put away. The snowball salesman faded away and the well digger became the deserts one and only snow/water salesman. The well digger asked the investor why he chose him?
The investor said its simple, both you and the snowball salesman were one and the same investment. Both projects offered a similar concept. At the time of my investment you were worth nothing financially and the snowball salesman was worth a lot, but the concepts were new, and supply and demand was there. I counted the people in the desert the investor said, I checked the weather patterns of the desert the investor said, I watched as people traveled from far away to see what the hype was, then I looked at the projects… It was easy to see; the snowball salesman was feeding a current hype, but you were planning an empire. The investor then looked at the well digger and said, the value of a project is what can that project accomplish not what does it already have. Money is easy to make it’s a lot harder to keep.
Price manipulation
Now let’s touch on price manipulation a bit more.
Price manipulation happens for a lot of different reasons and is a part of crypto that a lot of us hate but either way is part of it. Price manipulation won’t go away in crypto for some time and anyone who plans to be in crypto for any period needs to understand and accept that it will happen more frequently than not. Crypto is largely unregulated it is one of the things that makes crypto great, but it also can really hurt new projects. Some of the ways price is manipulated in crypto is as follows but not limited to.
1. Whale accumulation (whales will manipulate the price in any way that suites their needs to make profit up or down)
2. Competitor market manipulation (competition in the crypto space in fierce when a new project that is promising comes along it threatens to take a portion of the marketcap away from similar projects)
3. Pump and Dump (groups of traders will follow trends to increase or decrease volume on new coins in order to buy said coins cheaper or to sell them at a larger profit)
4. Project team price manipulation (the teams on some projects will create fake volume to show fake interest in a project to raise the price)
5. Fake projects (some new projects in the crypto space are created just to create interest and then the team will dump their coins and disappear)
6. Trading bots (trading bots are made to play the market spread and make the owner a very small percentage of profit continuously over time)
7. Day traders playing the spread (this is the same as trading bots but without the bots. Day traders will play the spread on a coin to make small profits continuously over time)
Whale accumulation
Whales will set up both buys and sells and will take profits on the spread well they slowly force the price down by having huge sell walls. On a new project this is very easy to do because volume is low well a new project is building. The basic way this works is by exhausting the market volume over the course of days weeks or even months well playing the spread and taking profits. By suppressing the market for an extended period, it sucks up all of the hype and initial interest and then the price will fall. The whale will make a small percent on the spread well the volume is still there and then will use that profit as well as take a lose if necessary to slam the price and push it down hard which then creates a panic sell where the wale will put in extremely low buy orders and will accumulate a mass amount of coins very cheap on the loss of other investors. Then once they accumulate they will stop suppressing the price and will buy into the sell orders to create a pump and bring the price back up. Whales have a large amount of resources to do this with and depending on the coin they could use thousands even millions to do this but in the end when the infancy phase ends and manipulation is harder to do because volume is to high they make a whole lot of money off of the coins they amassed.
Competitor market manipulation
Competitor manipulation is straight forward. When a new project comes along that is promising and could potentially eat into the marketcap of a similar project the competitor will accumulate coins from the new project and when that project is in a downtrend the competitor will then sell at a loss and drive the price down. They do this with the hopes that eventually the project team will give up on the project. This can’t last long and as volume increases for the new coin it becomes too expensive for them to drive the price down. Investors can largely control this by continuing to buy the new coin forcing the competitor to lose money pushing the price down until they stop.
Pump and dump
The dreaded pump and dump. A pump and dump are when a group of traders for whatever reason get together to either raise the price of a coin or to lower it. So many ways that this is done in crypto for so many different reasons. Basically, the idea is that investors on exchanges watch volume and price charts and will trade or invest based on those charts so if a group of people create volume and price fluctuations it causes people to either buy or sell. Crypto unfortunately can be dictated by emotions. A lot of people do not trade based on knowledge of a project in the early stages or even later on. People trade like it’s a gamble and hope to reap a reward and sometimes it works that way. Pump and dumps will always be a big part of crypto sometimes intentional and sometimes not. Pump and dumps are a lot more prominent on smaller exchanges with lower volume because a small group of investors can control prices easier on these exchanges.
Project team price manipulation
Some teams will buy and sell their coins to create fake volume and attract investors through hype.
Fake projects
These fake scam projects intentionally create false belief in their coin to dump on investors later on. I have seen fake projects that put a ton of work into building their coin up like months even years just to dump and make off with a ton of money. I’ve been taken by a few of these scams and if you have been in crypto for any length of time you probably have also.
Trading bots and day traders
Trading bots and some day traders trade to make daily profits. A day trader can have long term investments but if a day trader does well from day trading you can bet on that the coins they day trade they do not care about the overall price. Both day traders and trading bots do something I like to call trading the spread. The spread is the space between the buy orders and the sell orders. The larger the spread the better for day trading or bots. The way this works is as follows. On each exchange there is a set trading fee taken by the exchange per trade, so they will figure out the fees for a buy and a sell and combine them anything after that fee percentage is profit. Next, they will place buy orders at the top of the spread and as they buy coins cheaply they will then sell them on sell orders and make profit off the gap in price. If volume is there and other traders are getting in the way, they will do whatever they have to in order to keep their spread including pushing the price down. The overall price of the coins they day trade does not matter to them it’s all about the spread. Trading bots are even worse because they are set with a formula where they will play percentages of the spread over time to make a steady 2%-5% profit. Trading bots will literally not stop no matter what the price is doing if they are making money within their programed margins.
Summery
That about sums it up for this article. Do your research and understand the crypto market before you jump in because the pros are their waiting to make money off people like us and they have no mercy. The crypto market is amazing and has so much opportunity for anyone to make good money, but we need to know what we are doing before making investments. The most important thing to remember when investing in newer projects is it isn’t about the price at all at that stage it’s about the project and your belief in the projects future success. If the project has a good active team and a good plan of action for their project, then they are literally better than 90% of the other coins on the market. Yes, coins that don’t have this can and will make you money if you’re a smart trader but the coins with a future will make you rich if you have patients and let them produce what they are building. If you invested in bitcoin when people were manipulating the early BTC price, then you would now be a millionaire, but those guys didn’t get rich overnight it took years and look at them now.
The opinions in this article are not meant as investment advice in any way. These are my opinions and thoughts on the covered matter. I am not and do not claim to be a professional trader. Please do your own research first before making any investments and if advise is needed seek the advice of a professional financial adviser. I am not a financial adviser and getting financial advice from an internet article is never a good idea without any knowledge to decipher for yourself what is good and bad advice. Again, I am not a professional trader or financial ad
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