The activity in the crypto space these days isn’t a new phenomenon in spite of what so many “coiners” claim.
This ongoing narrative that “this is all new.” “It’s never happened before…” have been said during the dot-com bubble. Several oil and gas bubbles. Biotech. And so on.
Yes the tech is new but the story of human behavior is roughly the same.
If you spend any time studying markets (or social media posts) you will see that nothing is new in terms of human behavior.
You see, way back in the days before the securities business had much if any regulation people did all sorts of things to make money. Bucket shops, trading pools and all sorts of unsavory behavior by modern “standards”.
Well, except for crypto standards.
In the book Reminiscences of a Stock Operator, the author went through a lengthy discussion of how to manipulate a stock. It would in many ways be the same process as making a market on a stock but with some added twists from the per-regulation era.
First, he approached to run an operation on a stock that wasn’t performing. That wasn’t a speculative stock, but one of a real company.
He then investigates the stock to decide if it could be moved higher and considered the prevailing market conditions. And if the stock and market conditions warranted this type of operation he would then set the terms of the arrangement.
Then he went on to explain the details of how he would execute the process of “marketing” or selling a large amount of stock now under his control.
As I watched Bitcoin soar, this book came to mind. So I got it out and reread it for the first time in probably 15 years. It was eerie how prescient it seemed. Especially considering the book was originally published in 1935!
This period in Wall Street’s history provides an excellent idea of what market behavior in an unregulated environment would be like. Much like the cryptocosm of today.
See if it some of it looks familiar…
Consider the way the media (and now the internet) was used to spread stories about a manipulation target. The way he would buy up the stock to attract traders.
How the press was contacted to spread the story about the stock.
The news would then draw in new buyers from the public that then attracted active traders which created more activity that generated further interest from the press and brought in more buying from the public.
The circular motion of movement, buying, press, public participation, was textbook.
He would buy and sell to support the activity while moving the price higher. All with the intent of liquidating the stock he controlled on behalf of the group he represented at a certain price range.
That’s what came to mind when Bitcoin soared.
That’s why you need to use your head when it comes to trading crypto (or anything else), and not your heart.