This article proposes to (1) overview the dynamics inherent to the cryptocurrency market as it moves towards maturity and (2) examine the type of investor best equipped to engage the crypto market at this stage in its evolution.

It is self-evident that high levels of volatility currently characterise cryptocurrency trading, yet this is one of the strongest indicators of the high-levels of underlying potential.

While such a conclusion seems counterintuitive, the dissonance fades away once consideration is giving to the following factors:

  • Volatility is one of the most critical growth mechanisms at this stage in the development of the cryptocurrency ecosystem. It is the process by which sounder investments leap ahead from the crowd, simultaneously driving the entire crypto- environment to sustainable growth and maturity.
  • Such characteristics are true of all emerging markets, but somewhat amplified here because of the potential of crypto to come along-side, and then potentially replace, fiat currencies as the dominating medium in commercial transactions. This potential is, in every sense of the word, a game-changer. It is what defines cryptocurrencies’ unique investment prospects. To speak parabolically, it is like buying oil fields while engineers are racing to commercialise the first internal combustion engines.
  • Additional forces of undulation arise from the rapid divergence in type and direction of cryptocurrency; indeed these changes are so intense that we are witnessing the development of numerous distinctive, but highly interconnected cryptocurrency architectures.
  • That the crypto genus is evolving so rapidly, means it takes time for the market both to follow and adjust, making the whole process yet more charged.
  • It is inherent to the fundamental nature of the cryptocurrency principle that until the market reaches maturity, we are in that process-phase biology calls “the survival of the fittest”.
  • Within this context, it is important to understand that crypto failures are a necessary part of the process that shapes the market and directs the changes that allow the strongest to emerge. It is decidedly not, as some would suggest, a reason to steer clear of crypto investments. In the same way that trial and error works towards creating a vaccine against the COVID-19 virus, even failed crypto attempts contribute towards their eventual success. The genius is to invest at the right time on the right coin.
  • Furthermore, failure informs and helps bring maturation to the human elements that shape and direct the cryptocurrencies — and their markets — to the point of becoming mainstream.
  • Most critically of all, crypto volatility represents the impact of current megatrends as they profoundly reshape and shift the entire post-war economic settlement and its accompanying commercial and investment habitats.
  • This includes changing the environments in which governments operate, the more they are forced to play by a common set of market rules and seek to exploit the digital currency idea to their own advantage, will add further volatility, itself amplified as regulators rush to constantly optimise surveillance and control. The latter, of course, is intended to protect the investor, but it would be naïve not to see that there is also an intent to leverage the cryptocurrency market to protect central bank monopolies and further various political goals.
  • A world where governments no longer control the money supply is a very different entity, again adding to both the unknown and volatility.
  • Penultimately, we must note that at present government policies are almost ubiquitously designed to drive cash savings, from treasury bonds and from other safe havens in order to drive spending and new types of investment. As these funds enter the cryptocurrency environ they bring both additional volatility, but also growth potential.
  • Finally, there are the trillions of dollars of “quantitative easing” now released into the global economy. As night follows day, this action not only represents a substantial market distortion, but there is also the anticipation of a severe inflationary impact. Against this backdrop, sound cryptocurrencies offer a route to protection and security.

As to the second part of this article; the skill-sets and attitude necessary to profit from crypto trading. The guiding principles here must be (i) cognitive understanding and (ii) the confidence that comes from intuitive alignment to the market and the fundamentals behind it. The latter may seem highly subjective, but it is also a key characteristic of the effective trader. Furthermore, it is not so much subjective, as a honed ability to non-verbally, yet intelligibly engage with underlying market principles and draw the right conclusions. It is about deconstructing market dynamics into first principles and allowing decisions being guided by the obvious.

Other successful investor characteristics are more pragmatic. He or she should:

  • Enter the market with the expectation of less than perfect engagement. Making some poor choices and making occasional losses are all part of the trading experience — certainly intimate to effective learning. Falling down is all part of a baby’s journey to master the skill of walking, and so here. For this reason, the would-be trader should only invest what he can afford to lose and be of a mindset that quickly normalises when this happens.
  • Take note of commercial and political megatrends, but through the lens of leading cryptocurrency behaviours, especially bitcoin. Persevering in this process will yield valuable insights into definitive market dynamics. This is turn will allow the trader to be one step ahead of trends, and thus in an optimised position to add profit and build in growth to his portfolio.
  • Speaking of which, diversity of investment is the sine qua non of a stable approach. Whoever coined the saying, “Don’t put all your eggs in one basket” clearly had a valuable story to tell. Commercially mixed portfolios produce optimum gains and psychologically reduce stress. Together these create a route to growing investor calmness, confidence, and essential emotional distancing.
  • Understand that modest profit is a prompt to sell. The hope for a “little more” is really blinding greed. Again it is wisely written that “a bird in the hand is worth two in the bush”.
  • The pattern to be followed is a cognitively grounded, successive and incremental growth model, not the wishful but vain hope of winning the lottery.
  • Intuitive trading is not the same as uninformed guesswork, but rather the reverse. Even the born investor must work hard to learn and refine their understanding of the market and self. There is no substitute for effort and discipline. We live in an age where feeling has replaced thinking, but for anyone wishing to engage the cryptocurrency market, this is as sensible as crossing a busy road with your eyes and ears shut to your surroundings. Taking the time to learn is the best investment of them all.

In conclusion, the cryptocurrency market is indeed highly volatile, but only in a strictly narrative sense. The sense we would speak of a child learning to walk. “He falls down a lot” only anticipates the moment he rarely falls down at all. For those who are familiar with this stage of a market’s evolution, the challenges require informed and serious navigation. The potential rewards are great if tackled intelligently, incrementally, and over time. Volatility means opportunity.

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