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Cryptocurrency is stabilising as day traders drop out of the market

Posted: 6 April 2018 2:58 pm
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Flippers are turning into holders as the cryptocurrency markets mature.

Signs of stability are emerging in cryptocurrency, with a "seismic shift" taking place, as Nigel Green of deVere group described it to MarketWatch. This shift is the exit of day traders who came for the hyper volatility, and the entry of more speculators who see cryptocurrencies as projects with long term potential.

Green attributes the shift to recent market corrections, which have wiped out many day traders and inspired plenty of cautionary tales for others.

"It has been this correction that’s been mainly responsible for an evolution in investor attitude," he said. "I believe that now the overwhelming majority of investors do not view cryptocurrencies as a way to make a fast buck, as perhaps previously many more might have done.”

Sign of the times

Bitcoin is flattening out at only 5% to 6% 30-day (blue line) and 60-day (black line) median 24-hour volatility, for the first time since the enormous rise in late 2017. This is even as prices continue dropping. According to MarketWatch, dropping prices are typically correlated with higher volatility, which makes the current placidity a bit unusual.

Bitcoin's 30-day volatility at the start of the year was 8%, but has since fallen to 5% even with bitcoin plummeting by more than 40%.

This might be the result of day traders getting wiped out and closing down, and a loss of interest from those who came to get rich quick and left disappointed.

"Speculative money that was pumping into the space has almost left," said Charles Hayter, co-founder of CryptoCompare. "Although the market is subject to behavioral whims it won’t be in such state of flux as investors reposition."

Meanwhile, the tightening regulatory lens that's focused on cryptocurrency may also be bringing an element of stability to the cryptosphere, and further cementing it as a potentially viable option for those who want to take advantage of a longer-term investment rather than a quick buck.

This can be reflected in the changing make-up of cryptocurrency companies. Several major cryptocurrency hedge funds have closed their doors since the start of the year, citing the less favourable quick buck environment.

"People are able to leverage good returns last year to try to raise money this year, but this year is going to be different," said Protocol Ventures hedge fund founding partner Rick Marini.

"New capital has slowed, even for a higher-profile fund like ours," said Kyle Samani, co-founder of Multicoin Capital, to Bloomberg.

Meanwhile, those which are just starting up are often focused on the long term. When Liechtenstein's Bank Frick launched its direct cryptocurrency sales, it came with an emphasis on buying and holding for the long run.

Elsewhere, blockchain asset financial advisers are switching gears to re-education, and teaching clients to look at the features of a coin as a product or a company, rather than just a hyper volatile asset.

"The sorts of coins that have users buying into them are the coins where people are using it because there's some sort of value being created right now," said James Nguyen of Anti-Hero Capital.

These coins tend to be even less volatile than bitcoin, Nguyen says, because the holders usually have a better understanding of exactly what coins they are holding.

"All they really care about is that the cryptocurrency is still innovating and creating and giving them value for the purpose it was invented. Those are the ones that stand to appreciate over the next 12 to 24 months."

Disclosure: At the time of writing the author holds ETH, IOTA, ICX, VEN, XLM, BTC, NANO

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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