Amateur Traders Cause Bubbles

[jaysabi]

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

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[Nhazwrath]

apparently they have discovered that water is wet lol.  people like this is why bitcoin! => not you Jaysabi. 

[Poker Player]

 It pretty well explains the volatility that dominates the Bitcoin market without being a study about Bitcoin.

I don't think that can be applied to Bitcoin nowadays as amateur traders don't dominate the Bitcoin market. They have some influence but they definitely don't dominate it. If you were talking about the past, maybe the 2016-2017 market I could agree, but not nowadays.

That said, it must be recognized that they have influence over the price, especially when they are over-leveraged and at the slightest drop in the price they get margin calls, thus lowering the price even more, as we saw recently.

[davis196]

 It pretty well explains the volatility that dominates the Bitcoin market without being a study about Bitcoin.

I don't think that can be applied to Bitcoin nowadays as amateur traders don't dominate the Bitcoin market. They have some influence but they definitely don't dominate it. If you were talking about the past, maybe the 2016-2017 market I could agree, but not nowadays.

That said, it must be recognized that they have influence over the price, especially when they are over-leveraged and at the slightest drop in the price they get margin calls, thus lowering the price even more, as we saw recently.

Well,think twice.
Amateur traders still dominate the crypto market.Without them,the crypto whales wouldn't be able to make profits out of market manipulation,by creating FOMO and FUD phases.
Newbie traders have big influence over the stock markets as well,because of apps like Robinhood,trading has become really accessible for the "average Joe".
The volatility of the Bitcoin price can be explained with the nature of Bitcoin-limited supply and unstable demand.Rookie traders have big influence over the BTC price,without them,the volatility would be way lower and the market would be less liquid.

[Obito]

Shouldn't bubbles popped and given how stock market and the crypto market isn't giving in, I don't think that it's going to be a bubble that will pop anytime soon and people are always getting into these market, which means there's an endless supply of amateurs so what they basically mean is that the bubble pops and another is created.

[jossiel]

Gamestop stock also did a bubble and that's a perfect example of that study too.

As for the bitcoin market, there are more mature investors that are in here. Probably many came from the usual stock market and adopted bitcoin as their another market to jump in.

But it's still notable that there will always be those amateur and newbies that will invest to bitcoin out of their knowledge but due to hype.

[NeuroticFish]

Amateur traders are subject to FUD and make the growth be bigger and the fall deeper. But they are not trend setters and they don't have the power to create bubbles.
My guess would be that certain big players stay unidentified and got wrongly assimilated with the amateurs. But it's only a guess.

[michellee]

Amateur traders follow what other people say on social media without research of what they should do related to the current situation in the market. It is dangerous for them because they will not make a profit, making other traders panic if the price is suddenly getting down. We can not stop them from doing that, but we can suggest they calm down if the market is down so they do not make a wrong decision and try to analyze more to find the other information. Hopefully, the amateur traders can hold their emotion and always think twice before deciding.

[Wind_FURY]

OP, it’s very easy to blame “amateurs”/plebs, but it’s really leverage, derivatives, futures, and low liquidity that’s the main causes of bubbles. Bitcoin’s current level of liquidity today, if you remove leverage, derivatives/futures GAMBLING, it might cause bubbles to form more slowly/more controlled.

[paxmao]

Well that is not really true. One of the best known bubbles out there, the "dot com bubble" was not created by people who in theory did not know what they were doing, but rather by large investment firms and large investor who just did not want to miss out on the huge internet revolution. Lots of money was lost and a large chunk of it was not the newcomer´s but rather some very speculative yet professional funds trying to get a foot in the future without any understanding of what the future was like and ignoring some critical aspects, such as the need of a company to eventually be able to produce some income.

As of today, the crowds money can only move stock with very limited liquidity. They tried a Silver squeeze and failed.

[Leviathan.007]

You are maybe right in some different cases and markets but not bitcoin. I believe, bitcoin can not be dominated by the amateurs. However, according to what I know more than 90 percent of traders are actually amateur traders, no matter what they think. These newbies are usually holding a little amount of money but even these little amount of money can make the market fall/rise. That's why, In some cases people believe newbies can cause price bubbles in the markets.

[oHnK]

Well that is not really true. One of the best known bubbles out there, the "dot com bubble" was not created by people who in theory did not know what they were doing, but rather by large investment firms and large investor who just did not want to miss out on the huge internet revolution. Lots of money was lost and a large chunk of it was not the newcomer´s but rather some very speculative yet professional funds trying to get a foot in the future without any understanding of what the future was like and ignoring some critical aspects, such as the need of a company to eventually be able to produce some income.

As of today, the crowds money can only move stock with very limited liquidity. They tried a Silver squeeze and failed.

Yes I agree, bubbles are not made by those who are amateurs but those who are experts in investment management and have big pockets.  They can only spread rumors directly to move the market so that the market can be more manipulative because of them.  This is where the amateur traders, they become supporters of the issue so that it becomes a bubble.  They are not the main factor but only the supporting.  The intelligence actors are still big-pocketed players with their investment knowledge.

[palle11]

Amateur traders are subject to FUD and make the growth be bigger and the fall deeper. But they are not trend setters and they don't have the power to create bubbles.

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.

[fiulpro]

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 aren't people using this bubble for their own benefits? It's honestly the way people make money through cryptocurrencies. For me the Volatility is a positive thing if you know how to use it.

See when you learn anything it takes time and effort. If the amateur traders are engaging in trading they are learning a lot !! Soon enough they will have adequate experience and good strategy.

Now, study says a lot of things. Plus what do they intend to do using this study ? Ban amateur traders? Have them give a test to see who is intellectual and who is simple ?

According to my opinion,
Let this study be a study and don't think much about it, it's not worth our time.

[joniboini]

IMO retail and amateur traders are probably the right choice. Not all retail traders are amateurs, but they the most active market traders (or one of them). In addition to that, the market movement can badly affect them, so they have to be sensitive to market movement and usually fall into fomo or bear trap. Does bubbles their fault? Not entirely. The big players are the ones who create the rumours and news, so I don't think you can blame them.

[int03h]

Gamestop stock also did a bubble and that's a perfect example of that study too.

As for the bitcoin market, there are more mature investors that are in here. Probably many came from the usual stock market and adopted bitcoin as their another market to jump in.

But it's still notable that there will always be those amateur and newbies that will invest to bitcoin out of their knowledge but due to hype.

It was the word FOMO that caused the crypto bubble. That's also why altcoins that have raised ICOs, IDOs, IEOs since first listing on exchanges always have a "^" chart. The value was pushed up too high, the decline was prolonged, and it was difficult to recover the value of the life safety that they had achieved.
Retail investors are easily swayed by the news but that shouldn't be the reason for the market's deep drop as they tend to buy more than sell (from my observations).

[The Sceptical Chymist]

apparently they have discovered that water is wet lol.  people like this is why bitcoin! => not you Jaysabi. 

Seriously--that fact has been known for decades and has been written about for almost 100 years, if not longer (I've only read about the 1929 crash from books of that period, but there have been bubbles way before that). 

And yeah, it's true.  Those "amateur investors" tend to want to get in on any trend that they think will make them rich quick.  The problem is that by the time they do buy whatever's hot, it's too late.  The smart money has already been invested in the asset and will be the first money out when the market peaks.  It was true for comic books and internet stocks in the 1990s, real estate in 2006, gold in 2011...and the list could go on and on.  This isn't exactly a ground-breaking piece of writing by any means, and frankly it's not even worth discussing since it's hard to argue against it.

[RealMalatesta]

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 is not the amateur traders, it is the hype that causes it, hype makes even the veterans act as if they have never traded before and that is why it is not a good deal for anyone. I personally went for it as well and I have been here for 8 years, that is why I do not think that it will matter if you are a newbie or a veteran because as long as there is a hype around crypto there will be people who make that kind of price changes in the end and cause it to go up way too much.

I know it is not that simple, I know that it is going to be a bit of a challenge but in the end we are talking about something that is as profitable as it gets so why would veterans stay away while newbies take all the profits? Which is why veterans join the party as well. This is all of our problem, I like bubbles in crypto because it is a HUGE profit, but when it falls I am fine with that as well.

[Coroline]

 It pretty well explains the volatility that dominates the Bitcoin market without being a study about Bitcoin.

I don't think that can be applied to Bitcoin nowadays as amateur traders don't dominate the Bitcoin market. They have some influence but they definitely don't dominate it. If you were talking about the past, maybe the 2016-2017 market I could agree, but not nowadays.

That said, it must be recognized that they have influence over the price, especially when they are over-leveraged and at the slightest drop in the price they get margin calls, thus lowering the price even more, as we saw recently.

Well,think twice.
Amateur traders still dominate the crypto market.Without them,the crypto whales wouldn't be able to make profits out of market manipulation,by creating FOMO and FUD phases.
Newbie traders have big influence over the stock markets as well,because of apps like Robinhood,trading has become really accessible for the "average Joe".
The volatility of the Bitcoin price can be explained with the nature of Bitcoin-limited supply and unstable demand.Rookie traders have big influence over the BTC price,without them,the volatility would be way lower and the market would be less liquid.

Yes, it's like that, it's easier for novice players to play with their emotions, as at the beginning of this year a billionaire expressed his interest in the crypto world, beginners began to be interested in it but a few months later the billionaire expressed his unfriendliness to mining and beginners began to release their assets. A real stupid act.

[fara_buduk]

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