Have you purchased any of cryptocurrencies this year? If no, you are just like me. I do my best to not be a laggard in trading, but I still keep away from super popular bitcoin, etherium, dash and other cryptocurrencies. Fellows from tradingview are actively posting ideas for ETCUSD, BTCUSD, LTCUSD and other crypto assets.
My old trading habit is to keep away from a process, which looks so attractive to the public. Yesterday I’ve come to my favorite cafe to drink a cup of coffee, and heard several guys from the table next to me talking about… guess what? … how to deposit cash on crypto exchange, what cryptocurrency to pick and so on and so forth… That’s why I keep away from this process, at least for now. I know by experience, that success in trading has usually nothing to do with going with the crowd. While blockchain technology itself is very interesting, (and it becomes more and more evident that it will change much in our life), should we be involved? Read my reflection on this topic below.
Future of blockchain technology
May classical financial exchanges disappear in 10-20 years? I don’t think so because matching algorithms of the exchanges should operate very quickly, while decentralized computer network is a way much slower than centralized matching algorithm (like that on any centralized exchange), so niche for the latter would barely disappear. Financial transactions, such as wire transfers, may transition to blockchain technology, why not? The same is for clearing operations on the exchange. Though I’m not an expert in technology, I’m a trader and my focus is crowd psychology if you will. Charts usually tell a story about the crowd. What do they tell now?
The now moment.
First of all, I want to draw your attention to stats from Google trends. Notice that interest to this topic was extremely high so far:
This a chart of BTCUSD (Bitcoin vs US Dollar) for July 22, 2017:
If you compare two charts, you would clearly see that they correlate with each other, and previous historical high on a price chart was accompanied with historical high on a curve from Google trends. In other words – sentiment is extremely bullish for this asset, too many people are involved in the game. Maybe, it’s just the beginning of the big bubble and we will see 50000 for BTCUSD, I don’t know. But I know for sure, that purchasing an asset with an extremely optimistic bullish sentiment, is not a smart type of trading behavior.
It doesn’t mean that price will necessarily drop. It usually means, that phase of extreme public participation is always replaced by the phase of consolidation. This consolidation phase may be wide, but it’s consoldation, not a trend.
Public always looks at the rear view mirror and tends to buy on highs and sell on lows. That’s how any auction works. My point of view is very simple – if you missed a good rally, don’t chase it, the opportunity is gone. Time will show whether I was right or not, and we will get back to this topic later.
How to invest in cryptocurrencies alternatively
Now, the intrigue 🙂 For me, it’s less risky to consider purchasing stocks of companies which produce equipment for mining than cryptocurrencies themselves. Production for mining (graphic cards, mostly) will be in demand considering increasing interest to this topic from general public (not professional traders). I think that management of mentioned companies will not miss a chance to boost their profits by releasing new productive equipment very quickly following the increasing demand.
There are two stocks which I would follow: AMD (Advanced Micro Devices) and NVDA (Nvidia).
Take a look at charts of both companies:
You may see that they correlate with Bitcoin, but don’t plummet when Bitcoin’s price goes down. They are sort of robust to the volatility of Bitcoin and it’s very good for risk management.
Now, as a trader, you always want to have a limited and measurable risk. That’s why buying AMD and NVDA on NASDAQ (official stock exchange) looks more reasonble to me than buying Bitcoin on Poloniex (cryptocurrency exchange). By the way, any cryptocurrency trader holds counterparty risk – who knows what is going to happen with Poloniex and similar exchanges in the nearest future? I would prefer NASDAQ.
P.S. Don’t treat everything said above as recommendations for making a trade. Do your own research.