The crypto market is shifting from a platform to buy and hold digital assets to a full blown trading marketplace. The volatility of crypto currencies presented day traders with new opportunities to make a lot of money. The shorting of Bitcoin through margin trading and Futures market transformed the strategy of profits in the crypto space. The growth of institutional interest, investment, and corporate development put an end to the argument that Bitcoin will fail. Once the idea that crypto can be traded quickly and profitably took hold, it cemented its longevity. And the markets are seeing a shift from an investment asset to a disposable, profitable instrument.
After the price collapse in mid january 2018, most investors went from profiteers to bag holders. Having lost over 80% of its all time high value, Bitcoin became a waiting game; a wait for the market to turn. However, crafty traders discovered that while price declined, volatility remained constant. By properly timing the swings and buying, traders can make a constant stream of revenue. So long as people believe Bitcoin will come back, the money will not dry up. Day traders count on this mentality and continue to short Bitcoin even lower.
This month is seeing a frenzy of volume as Bitcoin breaks through each resistance line. The volume is observed in sell orders, OTC, shorting transactions, and in pre-positioned buy orders. Volume levels also shift depending on the market sentiment. Traders set buy orders and wait for prices to reach the lower levels. They liquify their shorts and re-enter the market at lower prices.
Day traders monitor the news and exploit investor’s sentiments who rebuy in a belief that prices will rebound. Unfortunately, the market pays the price when these shorters exercise their short contracts and drive prices down. For example, technical analysis indicates that despite the market taking a breather, there is little volume supporting the current price level. This means that the price will fall down significantly. This is the type of patterns teaders look for and which signal an opportune moment to open short positions. While all this new underground market exist, Bitcoin will find little stability.
The crypto market is gaining complexity with the addition of day trading to its mix. This is an unintended consequence to the creation of a replacement digital currency for fiat. And there is no end in sight. In time the infusion of institutional money will drive prices back up, and these will fuel the trading market even further. With securitization around the corner Banks are already preparing additional trading instruments like Swaps, DARs, NDFs, ETN, ISO, etc.
There is however a factor that will slow down this melee; the bottoming of prices due to decline of miners profits. In order for Bitcoin to recover, miners need to be incentivized. However, this won’t be a factor for long. The lower the prices go, the higher the pressure to buy will become.
In the end, margin trading has become a new staple in the future of the crypto narket. And the market will provide for a healthy ecosystem comparable to legacy stock markets. But as with existing markets, margin trading is profitable but extremely risky.