Financiers ‘keep skills sharp’ by trading cryptocurrencies

[alyssa85]

https://www.ft.com/content/2d4513ea-0b36-11e8-839d-41ca06376bf2

David is a quant, and he is between jobs.

He previously worked at one of the world’s top hedge funds and is currently on gardening leave, waiting to take up a new role at another company.

He has got nothing to do. So he trades cryptocurrencies from his home in London.

“It’s something to fill my days,” he says, with the air of someone talking about how they have taken up cooking or long-distance running. “I need to keep my skills sharp.”

While many investing in cryptocurrencies are ordinary people with little to no investing experience, people like David are finance professionals investing because it’s a challenge, or because the philosophy rings true to them, or simply for their own entertainment.

On any given day, David, who asked that we not use his real name, trades about £20,000 of exposure across the top 150 cryptocurrencies. The volatility, the wild swings up and down each day, is part of what makes it a worthy intellectual challenge.

“In a day’s worth of cryptocurrency movement you have a week or a month of equity market movement and a decade of country debt,” he says.

The stunning rise of cryptocurrencies in 2017 took the world of finance by surprise. Billionaire investor Carl Icahn called it a bubble and said “I just don’t get it”, while JPMorgan chief Jamie Dimon called bitcoin a “fraud”, a comment he later regretted.

But many in the sector joined in the frenzy with the rest of the public.

Men and women who spend their days making careful, considered bets on companies, markets and countries have, as much as anyone else, been captivated by the heady promises of a future built on bitcoin, or the more hard-nosed opportunity to make a quick buck in the middle of a bubble.

“It’s fun,” one hedge fund trader said, adding that she did not want “fomo”, the acronym for ‘fear of missing out’. One London-based banker was more blunt: it was gambling for people who could afford to lose a bit of money. “That’s it. Nothing else.”

Venture capitalists, typically on the more technologically curious fringe of the finance world, have bought into cryptocurrencies with gusto.

Alex Dunsdon, an equity partner at Saatchi Invest and a co-founder of Bakery, a corporate accelerator, says he understands cryptocurrencies in a way that he no longer does the stock market.

“I’ve been out of the stock market because it stopped making sense to me,” he says. Central bank support for the markets plus the trend of passive investing have turned it into a game with unclear rules.

“Over the past few years or so, everyone has just been buying indexes and they haven’t been doing price discovery. They’re just investing in a trend of something going up and up and up,” he says.

Even as bitcoin has declined 60 per cent since its peak in December, Dunsdon has remained bullish. He says he’s holding for the long-term as the cryptocurrency is the sort of “asymmetric mass unlimited upside” bet that venture capitalists love.

“If the market crashes and everyone loses total faith in crypto that’s when I want to go and play again,” he says.

Depending on your perspective, there has been such a crash. Across the cryptocurrency market there has been a prolonged sell-off since the heady heights of early January, when the “market cap” of the sector was almost $800bn, according to Coinmarketcap.

Now it is $300bn, though this is still far above where things were at the start of 2017.

Some managed to dodge the worse of the fall. Paul McNamara, a fund manager at GAM, bought ethereum in December, largely to appease a friend who sat him down and “went on and on about it”.

He says he doubled his money before eventually settling out 10 per cent up: “I traded it exceptionally badly.” Rob Kniaz, a partner at Hoxton Ventures, bought in as early at 2012 and used bitcoin when travelling. He sold right at the top last year, when bitcoin traded at $18,000.

Others are smarting from losses. One hedge fund partner said they had bought more cryptocurrencies as the sell-off hit their paper profits. “You don’t lose money until you sell,” they joked.

Irina Anichshuk, who works at an investment firm in London, said she had made losses of as much as 60 per cent on her investment in Litecoin. She has decided to hold on what she concedes is a “punt”, partly because “there’s no point of realising the loss”.

If it's fun for them, it's also fun for us pitting our wits against them. I'm pretty sure long-time bitcoiners are coming out ahead, as we sold to the noobs of the financial market in December...

[tdrinker]

While there are big similarities to other financial markets the cryptocurrency market still performs highly differently and many experienced traders will get burned. They're not prepared for the volatility of the market and they haven't had the experience that many long term bitcoiners have had. They've seen all the dips and falls many times over.

[SheepSuit]

I believe in crypto, I believe in decentralized means of exchange. Whether or not people make fiat currency trading it doesnt matter to me.

[btcone111]

Day trading in crypto market pretty much guarantees 80% of a loss due to its extreme volaility nature.
Only HODLers could win at the end.

[alyssa85]

While there are big similarities to other financial markets the cryptocurrency market still performs highly differently and many experienced traders will get burned. They're not prepared for the volatility of the market and they haven't had the experience that many long term bitcoiners have had. They've seen all the dips and falls many times over.

Agree. Also - most of the people in the financial markets have only experienced the bull run since 2009, with central banks intervening in the market (the Swiss National Bank actually owns 9% of Apple shares for example).

None of them have experienced anything like bitcoin where there is no central bank intervention, and where you can therefore lose all your money if you get it wrong.

[imapessimist]

If too many people do the day trading all the profit will be gone and the holders will lose out.  It's just sums.

[dothebeats]

Their knowledge in the traditional stock markets wouldn't apply even 90% of the time in crypto, that's why I barely listen to these financial experts when it comes to crypto talks. But in the coming months/years when crypto is flocked with these stock traders and finance experts, I'm inclined to think that the volatility would soon be lessened, and some of the traditional trading strategies, indicators and whatnot would soon apply to crypto since it would slowly shift its nature and exhibit activities similar to those of traditional assets. I guess I'm just wishful thinking, but there is a high possibility that crypto would soon be like traditional penny stocks in terms of volatility and market activity.

[jjacob]

While there are big similarities to other financial markets the cryptocurrency market still performs highly differently and many experienced traders will get burned. They're not prepared for the volatility of the market and they haven't had the experience that many long term bitcoiners have had. They've seen all the dips and falls many times over.

Your part time dabbling in cryptocurrencies cannot be compared to the experience of a long-term trader. You might make more money occasionally, but if I were to trust somebody with my money, it would be a financial markets trader. They can account for the volatility. What they may not (and most possibly do not) account for is the fact that these markets are unregulated and there could be blatant market manipulation.

[Beerwizzard]

Their knowledge in the traditional stock markets wouldn't apply even 90% of the time in crypto, that's why I barely listen to these financial experts when it comes to crypto talks.

Their knowledge could be easily applied to crypto market and it will work fine untill any new hype or FUD start. The bigest innovation of cryptocurrencies is technologies, not the economical side of the question. Unfortunatly most of those experts that spread FUD almost always face a conflict of interests. For example Warren Buffett own a big part of Bank of America which definetely prevents him from understanding how everything works.

I guess I'm just wishful thinking, but there is a high possibility that crypto would soon be like traditional penny stocks in terms of volatility and market activity.

Crypto is more like a penny stocks right now but I think the market will be purged lately. That is my personal opinion

[arpon11]

If it's fun for them, it's also fun for us pitting our wits against them. I'm pretty sure long-time bitcoiners are coming out ahead, as we sold to the noobs of the financial market in December...


[/quote]Hope we understand our reality "that we have sold to the nooks of the financial market in December" and we do this because we believe that we have making enough and we deserve to enjoy our new find investment opportunity. The current dump which some of us has sold out of panic has created a new cryptocoins investors out of the whole thing and a new whales has emerged that are going to determine the future of bitcoin and other coins pricing.

[talkbitcoin]

i don't find this specific to cryptocurrencies. there are a lot of people out there that are doing "day trading" stuff at home and not just cryptocurrencies, they are more active in Stock market and even Forex. saying things like "it is fun" and "it fills my day",... are just putting down the seriousness of this market. it is small and sometimes unpredictable but it is still a serious thing that many are doing as a real job to make a living. not just to have fun or have their skills sharp.

[gentlemand]

I don't particularly believe there's much or any skill involved in trading crypto, whereas there is a tad with shares as they're somewhat calmer and more measured.

Crypto is so relentless, shameless and chaotic that I'd assume anyone applying principles learnt elsewhere will get their arse handed to them rapidly.

[ocid]

Their knowledge in the traditional stock markets wouldn't apply even 90% of the time in crypto, that's why I barely listen to these financial experts when it comes to crypto talks. But in the coming months/years when crypto is flocked with these stock traders and finance experts, I'm inclined to think that the volatility would soon be lessened, and some of the traditional trading strategies, indicators and whatnot would soon apply to crypto since it would slowly shift its nature and exhibit activities similar to those of traditional assets. I guess I'm just wishful thinking, but there is a high possibility that crypto would soon be like traditional penny stocks in terms of volatility and market activity.

it is possible that it could happen if the crypto currency has been adopted by some countries as a currency with controls to be carried out by the government. But I think it is still very far that it can happen because today there are many countries in some parts of the world who still consider that Crypto is a problem in economic terms so the state does not want to accept the existence of crypto currency.

[TERA2]

I don't particularly believe there's much or any skill involved in trading crypto, whereas there is a tad with shares as they're somewhat calmer and more measured.

Crypto is so relentless, shameless and chaotic that I'd assume anyone applying principles learnt elsewhere will get their arse handed to them rapidly.

There are definitely skills involved in trading crypto, but they are crypto specific skills. You learn them only from years of trading crypto. You can't just use your experience from trading stocks. An example is always buying at a certain volume and percentage drop, and learning how walls lure buyers and sellers.

[bitcoin_is_here_to_stay_2]

I don't particularly believe there's much or any skill involved in trading crypto, whereas there is a tad with shares as they're somewhat calmer and more measured.

Crypto is so relentless, shameless and chaotic that I'd assume anyone applying principles learnt elsewhere will get their arse handed to them rapidly.

There are definitely skills involved in trading crypto, but they are crypto specific skills. You learn them only from years of trading crypto. You can't just use your experience from trading stocks. An example is always buying at a certain volume and percentage drop, and learning how walls lure buyers and sellers.

TERA,  sounds very interesting. Can you be more specific? Especially how walls lure buyers and sellers. I'm trying to learn to trade crypto better and you seem to be one of the best traders on this forum .

[jimbo2000]

I don't particularly believe there's much or any skill involved in trading crypto, whereas there is a tad with shares as they're somewhat calmer and more measured.

Crypto is so relentless, shameless and chaotic that I'd assume anyone applying principles learnt elsewhere will get their arse handed to them rapidly.

There are definitely skills involved in trading crypto, but they are crypto specific skills. You learn them only from years of trading crypto. You can't just use your experience from trading stocks. An example is always buying at a certain volume and percentage drop, and learning how walls lure buyers and sellers.

TERA,  sounds very interesting. Can you be more specific? Especially how walls lure buyers and sellers. I'm trying to learn to trade crypto better and you seem to be one of the best traders on this forum .

Without meaning to jack someone else's answer, (I'd be interested if TERA can add more to it) with walls it seems to just be a case of a psychological phenomenon. When there's a big buy wall that makes people think there's a lot of buy pressure and strength so they put their offers in above that buy wall, and then the reverse with a sell wall. More often than not these walls are never even touched and if they are they're often pulled before being filled.

[bitcoin_is_here_to_stay_2]

I don't particularly believe there's much or any skill involved in trading crypto, whereas there is a tad with shares as they're somewhat calmer and more measured.

Crypto is so relentless, shameless and chaotic that I'd assume anyone applying principles learnt elsewhere will get their arse handed to them rapidly.

There are definitely skills involved in trading crypto, but they are crypto specific skills. You learn them only from years of trading crypto. You can't just use your experience from trading stocks. An example is always buying at a certain volume and percentage drop, and learning how walls lure buyers and sellers.

TERA,  sounds very interesting. Can you be more specific? Especially how walls lure buyers and sellers. I'm trying to learn to trade crypto better and you seem to be one of the best traders on this forum .

Without meaning to jack someone else's answer, (I'd be interested if TERA can add more to it) with walls it seems to just be a case of a psychological phenomenon. When there's a big buy wall that makes people think there's a lot of buy pressure and strength so they put their offers in above that buy wall, and then the reverse with a sell wall. More often than not these walls are never even touched and if they are they're often pulled before being filled.

Thanks, Jimbo. But I can also imagine an alternative scenario, e.g. I am a whale and want to buy a lot of bitcoins without raising price to much, so I wait until there is a big sell wall, and voila, I can have my position without (much) slippage. I was not following prices long enough to know which scenario occurs more often. Knowing this would be one of the "crypto specific" trading skills, I guess .

[TERA2]

No. Walls in bitcoin have this reverse psychology. If one person touches it, everyone else will try to fill it.

[jimbo2000]

Thanks, Jimbo. But I can also imagine an alternative scenario, e.g. I am a whale and want to buy a lot of bitcoins without raising price to much, so I wait until there is a big sell wall, and voila, I can have my position without (much) slippage. I was not following prices long enough to know which scenario occurs more often. Knowing this would be one of the "crypto specific" trading skills, I guess .

I've definitely seen such a thing happen before but I would say it's generally quite rare. For the most part I find the whales buy/sell prices are similar to one another and so you often won't find someone looking to sell a large chunk at the same price as someone looking to buy a small chunk. At least that's what I've witnessed but this is more in smaller cap alts.

No. Walls in bitcoin have this reverse psychology. If one person touches it, everyone else will try to fill it.

I've also witnessed this quite often. It's hard for prices to approach a wall but often once that wall starts to get eaten it will be destroyed because people believe that once that will is down the price will go much higher/lower.