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13th January 2023 > > Market psychology.


Some thoughts about market psychology and its impact on short-term price action, a rare break from the CCC’s usual focus on the longer-term events and influences over crypto adoption.

Market Snap

Market Wrap

Just for a minute or two, BTC breached the 19-handle yesterday evening. I was very excited at $19,003 plus a few cents, but that is as good as it got. Then again, this morning a second breach to the upside adding 4 more dollars to the monthly high. But this doesn’t necessarily mean I spend all day every day just looking at my screens scrutinising crypto prices (who are you kidding? – ed.)

There is lots of noise and confusion around whether the start of 2023 is the end of the crypto winter. Despite what anyone might say in any forum you could mention, no-one will know the end was called until many months later.

Curious Cryptos’ Commentary — The end of the crypto winter

There is a common misperception that my personal involvement in cryptos is simply to bolster my personal finances. It is true, unemployed as I am, that a bit of bolstering would not go amiss. But that is not my primary motivation.

My enthusiasm for all things crypto stems from a belief in the revolutionary potential of blockchain technology. The potential to make the world a better and fairer place, with ever greater degrees of personal freedom and liberty. As shown by recent events, governments’ lack of caution when it comes to these specific principles demonstrates that even in the liberal Western world, these hard-won pillars of a just society can be readily and rapidly sacrificed.

I do accept that for most market participants that cryptos are just another avenue for investment dollars, and even for us freedom fighters, we wish to maximise the financial opportunities available.

The CCC does not provide specific investment advice, but our team of enthusiasts provide ongoing coverage of the broader issues that may or may not affect crypto prices over any period, but particularly the longer-term.

That does not mean that what happens in the short-term is irrelevant. Far from it. The painful price action of 2022 hurt a lot of the (later) entrants of 2021, and might possibly have a dampening effect on the rate of crypto adoption going forward.

The question is, how does one as a crypto investor process the events of 2022 to form a view of 2023 and beyond?

The psychology of markets is always an important consideration. And by that, I mean the psychology of each of the individual participants. We cannot know each one personally, and one would probably not wish to do so. But I think we can draw some broad outlines, in an attempt to build our own personal model of how crypto markets might behave going forward.

There is – I believe – a large cohort of crypto believers, the sort of category that I would comfortably fit into.

Many of these people were early adopters, but there are always new converts to add to our ranks.

Often referred to as “diamond hands” these people used 2022 to continually add to both their crypto holdings, and stocks related to cryptos. On the crypto side, as alts underperformed BTC and ETH, more attention would have been paid to them, in expectation of future outperformance. On the stocks side, options are more limited, but Coinbase would clearly rank highly, and some of the miners. Riot, I suspect, would be a top pick, and speculative punts on Argo since its rescue from almost certain bankruptcy (see CCC 28th December 2022) might pay off handsomely IF the crypto winter is over.

This cohort, whether they know it or not, have been practising a form of DCA (dollar cost averaging) - a remarkably efficient tool for increasing investment returns. It is at its most effective during periods when the emotional side of investing is at its lowest ebb. But who ever said that early stage investing in world changing technology was for the faint-hearted?

Another group of people will be later adopters, who can see and feel the potential benefits of cryptos, but who have been hurt financially during 2022.

This is probably a cohort that makes up much of the global readership of the CCC. These investors know that in the long run cryptos will win both in the real world and in terms of personal investments, but their knowledge may be limited, and their time for cryptos and their patience with them even more so.

The end of the crypto winter – whenever that might be - will bring relief that spare investment money has not been thrown away. Annoyed by a failure to take advantage of the crypto winter of 2022, this cohort are likely to become active and enthusiastic investors once more.

Next on the list is a sizeable cohort of speculators, who got involved in cryptos simply to make a quick buck. Some of them did so, and good luck to them, many more did not. These folk are “weak hands”. They will be greedily eyeing up the recent price action and calculating their breakeven price to get out when they can.

Though at first this group will provide a dampening effect on future price movements, once their selling is largely complete, a sizeable proportion of them – IF the crypto winter is over – will rapidly regret their eagerness to get out flat, and will become net buyers again.

Their speculative urges will not allow them to walk away from the bad decision to sell at breakeven.

Theirs is the very worst approach to crypto investing, but you might be surprised at just how many people behave this way.

Finally, there is the largest group of all, dwarfing all the others put together.

These are the people who know nothing of cryptos. Having – at best – heard of blockchain technology in passing, they will increasingly adopt crypto usage in their daily lives, much as the internet replaced older more inefficient ways of doing things.

Though the endgame remains unchanged, the interplay between these disparate groups of folks will have a material impact on the pace at which we reach our destination and could dramatically influence price action in 2023.

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