Trading Crypto: Supply and Demand

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There are generally 2 reasons why people buy crypto:

  1. Idealism
  2. Profit
  3. Both of the above.

So, besides idealism, many people buy cryptos with the sole reason to sell it again. For a profit. You too probably. Besides crypto, stocks and other securities, there are very few things people buy only to sell it again.

Traditionally when buying and selling stuff, rare stuff is more scarce, and this scarcity is expressed in its price. When stuff gets more scarce it als gets more expensive.
As price increases, the demand decreases.
Suppliers can increase supply, to decrease price.
When suppliers and demanders find equilibrium between price and quantity
this is called price discovery.

In crypto trading (as in other securities trading) this is a bit different. As a coin gets more expensive, demand for it usually increases. It is a bit similar to an auction. The urgency creates irrational buying behaviour and pumping of the price.
Traders rarely look at actual supply of a coin when they trade it.

With Technical Analysis traders try to predict crowd behaviour. You have probably heard about FOMO, or the Fear Of Missing Out. The fear to miss a special opportunity. It is irrational reckless greed, without really thinking about the real value of the coin. On the other side there is the Panic. Where traders get overly cautious and want to get out of a trade no matter what. Even selling at a loss. These FOMO’s and Panics happen on all scales, like the dotcom bubble at the start of this millenium and Crypto bullrun at the end of 2017, and mini versions on daily, or even lower timeframe charts.

Crowd behaviour is all around us. We behave differently in crowds.  When there is a rumor of bad news, then often price drops dramatically, even though there is no actual bad news at all. When a big player sells his position, causing a drop in price, many other traders will follow.

At the other hand, a big buy is also enough to trigger a big rise in price, as many traders follow. In crypto the crowd is often manipulated. As a matter of fact, crowd behaviour, crypto, and fake news can’t be seen as separate things.
Social media is full of fake news, invented rumors to trigger the crowd into buying or selling. Pump and dump schemes etc. 

Technical traders avoid listening to all the news and inherent disinformation.
Also because there is no end to the supply of information.
That’s why price is the only information a trader really needs. Every panic and other crowd behaviour is already embedded in the price in a more objective way.

That’s why many technical traders often say they prefer to let the market decide for them what they will trade.

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