Amateur Traders Cause Bubbles

[MCobian]

It's true that amateurs are more emotional, less cautious and tend to follow price trends without carefully watching and reading technical price movements, but these can't create bubbles. because they are only part of it, unlike whales and bears they are very likely to make it with experience and influence

Bubbles occur not only because amateurs buy without doing research and analysis first. But what causes the bubbles is actually the whales that
manipulate the price, most of the whales are very experienced. So they can take advantage of the emotions and stupidity of amateurs to create FOMO,
in the end a lot of amateurs buy at peak prices. The conclusion is that bubbles occur from various factors, so don't completely blame amateur traders.

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[Hydrogen]

The study further noted that amateur traders do not aggregate private information well and show lower levels of strategic sophistication than professional traders.  

A classic example of that could be the well publicized fall of enron. Amateur investors threw mountains of money at it. While many professionals stayed away suspecting that something about their numbers didn't add up. Eventually, accusations of accounting fraud surfaced and were investigated. Game over.

The trend of amateur investors having the liquidity to influence markets may have reversed awhile ago with the trend of amateur investors having reduced savings and disposable income. Statistics relating to the number of people who live paycheck to paycheck have risen significantly. The average amount of savings people have. And similar numbers have declined over time. Leading to that demographic being far less relevant in the investment and trading world.

Central banks like the federal reserve have come to dominate trading volume in US bond, currency and stock markets in recent years.

[spacelens]

That's absolutely true. Most often it's the amateurs who pay the price when bubbles burst. If you look at the longevity measured in decades of professional investors and traders vs. amateurs, you see that the odds are in favor of those who have a better access, more information, and can move important amount of funds to impact certain markets.

It's true that amateurs are more emotional, less cautious and tend to follow price trends without carefully watching and reading technical price movements, but these can't create bubbles. because they are only part of it, unlike whales and bears they are very likely to make it with experience and influence

Bubbles occur not only because amateurs buy without doing research and analysis first. But what causes the bubbles is actually the whales that
manipulate the price, most of the whales are very experienced. So they can take advantage of the emotions and stupidity of amateurs to create FOMO,
in the end a lot of amateurs buy at peak prices. The conclusion is that bubbles occur from various factors, so don't completely blame amateur traders.

[hatshepsut93]

I think even if Bitcoin was dominated by pro traders, it would still be prone to bubbles, just with smaller magnitude. Bitcoin is not a stock or a bond, there's no way to calculate its value, it's all just guesswork. How much value should be added to Bitcoin based on El Salvador adoption? 5%? 20%? There's no answer to that, it's just feelings. Add here the novelty factor that is still present, as Bitcoin is still having "first times" - first wave of institutional adoption, first time legal tender, and there's even more reason why the price is so subjective.

[Chato1977]

A study done by the New York Fed suggests that when trading in an asset becomes dominated by amateur traders, it tends to form asset bubbles.  The study further noted that amateur traders do not aggregate private information well and show lower levels of strategic sophistication than professional traders.  It pretty well explains the volatility that dominates the Bitcoin market without being a study about Bitcoin.

Fed Report:  https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr939.pdf

But is this available also for Bitcoin or in crypto? we all knew that Newbies are very rare in this market and they are not entering in Bulk instead there are very few of them that will invest and they are not even capacitated in making a bubble.

[TheUltraElite]

we all knew that Newbies are very rare in this market and they are not entering in Bulk instead there are very few of them that will invest and they are not even capacitated in making a bubble.

Newbies are the ones who take the fall in the whale game. If there is no new money coming in then how to do you explain the increasing market capitalization of bitcoin or for that sense altcoins too?

The growing interest in crypto added with the news media's sudden change of stance from "Why you should not invest in bitcoin" to "10 reasons for investing in bitcoin" - does bring in a lot of newbie meat into the market. Those who are unable to buy gold or stocks will try something alternative and the answer quickly ends up in bitcoin.

Point is that the whales need a place to dump their shitload. So the newbies are the ones. If they dont do the FOMO/FUD the cycles will become slowed. Lack of prior trading knowledge or knowledge of speculative markets makes them susceptible to manipulated markets.

[semobo]

A study done by the New York Fed suggests that when trading in an asset becomes dominated by amateur traders, it tends to form asset bubbles.  The study further noted that amateur traders do not aggregate private information well and show lower levels of strategic sophistication than professional traders.  It pretty well explains the volatility that dominates the Bitcoin market without being a study about Bitcoin.

Fed Report:  https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr939.pdf

Amateur traders causing the bubble to burst but they are not the one getting benefited from it, they always on the losing side because they sell when market dumps and buy when market bumps.

Every professional trader was once a noob who lost their money while trading as well.

[NeuroticFish]

But to the contrary I think they can set a new trend. As you mentioned that that are subject to FUD and that means they can trade in panic, so if it happens the fear a spike and starts trading with the spike, that can change direction of price and at same time , a fundamental can hit the spike to happen, it is possible to totally change price direction. You already know that fundamental or news can be a reason to see huge spikes. Spikes that happens in a longtime hour like week or in the monthly candle is possible that trend will change to the direction of amateur.

Even newbie trader wannabes know that "the trend is your friend" and it's counterproductive to piss against the wind.
So FUD and panic will not make them sell if the price is growing, for example. Just my 2 satoshi... but yeah, no worries, I don't expect everybody agree with me 

[ethereumhunter]

It's true that amateurs are more emotional, less cautious and tend to follow price trends without carefully watching and reading technical price movements, but these can't create bubbles. because they are only part of it, unlike whales and bears they are very likely to make it with experience and influence

I guess not just the amateurs can be more emotional because traders who have experience can also get panic or too emotional, especially they see the price can jump fast to the high or low price. It is normal to see we are panic because we never know when the price will move and what will happen later. But yes, the amateurs will cause bubbles because they do not analyze more to find the way to solve that.

[mu_enrico]

We used to the well-known phrases: smart money and dumb money, not necessarily all amateurs are categorized as dumb money.
But yeah, dumb money will contribute to any assets bubbles and they will be the primary victims when it all explodes.

Especially in the crypto market, it is too easy for anyone to register and start trading with small money, this almost-no-barrier thing contributes a lot to the pump.

[swiftbits]

It could be the case, considering how they were controlled by the media, the accumulation of their action can become a trend
but would they last if they can be manipulated? they could lose the game.

[el kaka22]

Newbies are the ones who take the fall in the whale game. If there is no new money coming in then how to do you explain the increasing market capitalization of bitcoin or for that sense altcoins too?

The growing interest in crypto added with the news media's sudden change of stance from "Why you should not invest in bitcoin" to "10 reasons for investing in bitcoin" - does bring in a lot of newbie meat into the market. Those who are unable to buy gold or stocks will try something alternative and the answer quickly ends up in bitcoin.

Point is that the whales need a place to dump their shitload. So the newbies are the ones. If they dont do the FOMO/FUD the cycles will become slowed. Lack of prior trading knowledge or knowledge of speculative markets makes them susceptible to manipulated markets.

This is not a ponzi scheme, you do not need new money to increase the price of bitcoin or any other coin, even the fact that people not willing to sell for cheaper is a good enough reason. So, let's say every single person who is selling right now decides not to and remove their orders then put that into 50k, suddenly the price is a lot higher and we didn't even spend a single dollar, which means price can go up without spending money, it is not always buyers that buy and increase the price, there are sellers that do not sell and hold as well.

If it was always "new money needed to keep increasing the price" then we would be a ponzi scheme and whenever new money didn't come then it would crash and burn, but we had many moments when new people didn't join and we were still doing fine, all within ourselves. So do not be worried if new people do not come constantly, we will be fine.

[TheUltraElite]

If it was always "new money needed to keep increasing the price" then we would be a ponzi scheme and whenever new money didn't come then it would crash and burn, but we had many moments when new people didn't join and we were still doing fine, all within ourselves. So do not be worried if new people do not come constantly, we will be fine.

It is defenitely not a ponzi, what I meant was that new meat in the market is a good thing for the whales to dump on. Whales are out there to cash in and cash out, not for the long term support of the project.

It could be the case, considering how they were controlled by the media, the accumulation of their action can become a trend but would they last if they can be manipulated? they could lose the game.

Without regulation, a market is going to be manipulated once people see that the pump and dump is easy. Besides organic growth in price an inorganic growth is very common here. The effect of the media is evident on the market. These things are to be kept in mind for any trader. Does not mean they have to follow social media, but its effects on the market, yes.

Even newbie trader wannabes know that "the trend is your friend" and it's counterproductive to piss against the wind.

LOL nice analogy there, you would not want to get your pants wet. But you can sell when the price is rising, does that go against the trend? Being with the trend means doing what others are doing, meaning buying when everyone is buying. Am I missing your thought here?

[NeuroticFish]

But you can sell when the price is rising, does that go against the trend? Being with the trend means doing what others are doing, meaning buying when everyone is buying. Am I missing your thought here?

Indeed, the trend means buying when everybody is buying. And when everybody is buying the price is going upwards.
Imho, if one sells when the price is rising, it means that he sells when the others are buying, so imho it's against the trend.

This would denote that the seller is either not really newbie and had a plan to sell after a certain profit, either knows how to read the news and TA and expects a reversal - i.e. again not a newbie.

[Shenzou]

A study done by the New York Fed suggests that when trading in an asset becomes dominated by amateur traders, it tends to form asset bubbles.  The study further noted that amateur traders do not aggregate private information well and show lower levels of strategic sophistication than professional traders.  It pretty well explains the volatility that dominates the Bitcoin market without being a study about Bitcoin.

Fed Report:  https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr939.pdf

Maybe this can be applied to small cryptocurrencies but i don't think that it could be applied to the bitcoin market, as bitcoin has became highly dominated by whales and the ones who trade it on a large scale with large amounts, and i don't think those one will do any move or make any decision just randomly that causes a bubble, and even then they would still won't have any large impact on the price since we are talking about a trillion dollar asset like bitcoin.

[inoes]

Amateur traders usually just follow someone's lead (YouTuber, artist, Twitter), follow the trend, and follow what people say on social media without further analysis.  because the bubble is like a local pump, pump as soon as possible and dump as soon as possible.  It is advised not to be tempted by any lure unless it is mastered.  we usually know as DWYOR

[ilovealtcoins]

Bubbles occur from many different causes.
First is the newness of the trend, we saw the dot-com bubble of 1999 with the birth of technology companies in the internet space.
Second, the law does not have an adjustment mechanism for new types of assets and items, leading to market manipulation and disruption. The most obvious examples are the ICO bubble of 2017 and the tulip craze of the past.
The third is the naivety of retail investors in an unknown trend. for example The sharp decline in the price of GAMESTOP stock
Investors seek profits and they are conscious of their behavior but sometimes excessive FOMO causes them to lose. That is the behavior of amateur investors. They are just one of the causes of the bubble.

[Silberman]

A study done by the New York Fed suggests that when trading in an asset becomes dominated by amateur traders, it tends to form asset bubbles.  The study further noted that amateur traders do not aggregate private information well and show lower levels of strategic sophistication than professional traders.  It pretty well explains the volatility that dominates the Bitcoin market without being a study about Bitcoin.

Fed Report:  https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr939.pdf

It explains some of the volatility but not all of it, we must remember that the whales have huge influence and they can crash the market if they want in an easy way, we know that a lot of traders use leverage and they overexpose themselves, this means that a strong reduction in the price is enough to wipe them out, so when the time is right whales take the decision to crash the market and when they do this creates a chain reaction which makes the price to go down.

[Similificator]

A study done by the New York Fed suggests that when trading in an asset becomes dominated by amateur traders, it tends to form asset bubbles.  The study further noted that amateur traders do not aggregate private information well and show lower levels of strategic sophistication than professional traders.  It pretty well explains the volatility that dominates the Bitcoin market without being a study about Bitcoin.

Fed Report:  https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr939.pdf

Your argument does make sense. New comers tend to just dive in without even knowing what they are getting themselves into. Just with the though of getting rich quick, they believe any exaggerated fantasies fed to them by some unknown source. Which only gives benefits to the developers of those shitcoins and the ones who know what is actually going on. Amd maybe because they got fcked by those shitcoins, they go ahead and invest on well established coins in an attempt to get back what they loss and if possible, get some profit along the way, which isn't really a bad idea. But the thing is, these people have too little to no knowledge about how things work in this industry. Thus, their hand are weak, they get easily swayed by fuds and carried away by their emotions which makes them buy or sell without proper planning or thinking. All this can result in a huge increase in unnecessary volatility.

[famososMuertos]

Well, extrapolate that study to bitcoin is not determining but binding.

In any case, amateurs are the raw material or the main agent that gives value to cryptocurrencies or bitcoin, without these users (all of us) what would be the crypto market, being an investor is within everyone's reach, it is a symbiotic balance, that is not seen in the traditional market, few investors (experts) many actions in a market with controlled access.