Disclosure: This article is for information purposes only and should not be considered as investment or tax advice.
Research and Experience
Investor behaviour plays a key factor in the pricing of investment options. One news story can significantly increase or decrease an assets price, which can lead to extreme valuation changes. Investor experience and knowledge is the root cause of behaviour. Understanding this helps one understand the major price changes of cryptocurrencies. Experienced, knowledgeable, and successful investors are often looking for long-term sustainable growth. Inexperienced investors are often unsuccessful because they believe investing is something should earn them a lot of income fast. While successful DIY day traders exist, they are not the norm.
Successful investors establish entry and exit for each investment by researching an assets financial records and future prospects. Because of this, short-term price fluctuations and news stories will not cause an experienced investor to suddenly buy or sell in bulk. This mindset is difficult to carry over to the cryptocurrency world, but is necessary in the hunt for long-term gains.
The majority of the wealth is managed by professional investors in the traditional environment. However, in the cryptocurrencies world much of the wealth is held by inexperienced DIY investors. Wall Street and the whales that come with it are just now entering the market. How this will impact prices in the long run is still to be seen, but this weeks sharp moves of Bitcoins are likely linked to the opening of the futures market and increased institutional interest. If you are already invested in Bitcoin December of 2017 though, the entrance of institutional investors should be a bull signal for you in the long-term. With these investors Bitcoin gains more legitimacy, and with that comes growth.
However, these headlines can also cause a lot of swings, that may unsettle an inexperienced investor. For example, on Nov. 29 massive swings in Bitcoin’s price were surrounded by contrasting headlines, such as this bull market spin and this bear market story both from Bloomberg. Dependent upon which of these stories was seen by an inexperienced investor, their knee jerk reaction to it could have further pushed them one way or the other. An experienced investor would have already come up with a price to buy and sell Bitcoins at, and as such should not be moved by the stories of Nov. 29, 2017.
This article is not intended to insult inexperienced investors, rather it is meant to provide them with reasons to establish an investing strategy and to stick with it. A good place to start is to understand the expected price action and long-term return of a coin. The investing world is ever-changing, but there are some key principles that have been around a long time. An investors education should never stop, and you should always consult a professional.