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The professionalization of the Bitcoin trader over the years
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[Image: shutterstock_739617883.jpg]
The Bitcoin market is still very new, and for these reasons, it undergoes frequent transformations. It was not just the market structure that changed. Participants too. The Bitcoin trader and arbitrator has undergone a major process of professionalization in recent years.

From 2009 until the last two years, we saw the volume of crypto trading explode, new more robust brokers and the emergence of more sophisticated financial instruments in this market, such as derivatives.

Until 2013, Bitcoin was a collectible, mainly by onlookers, cypherpunks and anarcho-capitalists who used Deepweb. With the 2013 bubble, the asset gained notoriety and attracted many people, including traders who wanted to take advantage of the high volatility of the market.

Volatility is the term used to fluctuate the price of an asset over a given period of time. The greater this oscillation, the greater the "vol". But, why do oscillations happen so often in Bitcoin? The answer is quite simple: the market is new and is full of information asymmetries, which end up generating an inefficient price formation.

[Image: chart-1024x1024-1.png?strip=all&lossy=1&...C509&ssl=1]
The chart above shows Bitcoin's historical volatility. It is possible to see that it is in a downward trend. Source: BuyBitcoinWorldWide

That is, in 2013 Bitcoin was a new asset that almost nobody knew how it worked. The information was practically nonexistent for those just starting out. In addition, the size of the market was very small, which generated a great deal of inefficiency in pricing the asset. Today we still have asymmetry, but to a lesser extent.

Asymmetries and opportunities

Asymmetry attracts opportunities to earn money, and where there are opportunities, there are those who want to take advantage of it. It didn't take long for traders and arbitrators to show up to make money.

Traders, in possession of some relevant information, analysis or expectation, bet in some direction of the price (up or down). Arbitrators, on the other hand, take advantage of price differences in different Bitcoin brokers, buying where it is cheap and selling where it is most expensive.

These two participants have always existed in the traditional financial market and will continue to exist. What can change is your profile and the modus operandi. At the beginning of the past decade, traders and arbitrators maintained a more amateur operation than today. As the market matures, more tools.

However, the trend is that they will be replaced by traders and arbitrators with even more sophisticated and efficient operations. To do this, just watch the rise of robots, something-trading and HFTs on trading platforms.

The rise of robots and HFTs

Trading robots are already responsible for a large part of operations on the most sophisticated trading platforms, such as Deribit and Bitmex. Programmers are able to integrate their robots on these platforms through APIs, automating a large part of their operation.

In this scenario, the amateur trader who operates "in the hand" is at a great disadvantage. The robot tends to surpass it in the efficiency of reading graphic patterns, order flow from the order book and interpretation of technical indicators.

In addition, robots do not have the behavioral bias of humans and can operate more “rationally” in the short term. This means that the robot does not feel fear and greed, unlike the "root operator".

It was not long before something-traders appeared, who also program robots that execute strategies based on mathematical and statistical models. That is, the Bitcoin trader has won big competitors, which makes opportunities scarcer.

Another major contributor to reducing market asymmetry was High Frequency Trading. An operating table that can use a robot that performs thousands of operations per second, also known as "High Frequency Trades".

HFTs operate on both sides of the order book, mainly operating the difference between buying and selling (spread). They are also able to do several arbitration operations.

Whoever came from the Stock Exchange, managed to put the Bitcoin market in the “pocket” and easily outperform the “amateur traders”. Especially who set up the operating table.

Increasing market efficiency

Bitcoin was the biggest source of “easy money” in the history of mankind and I can prove it. Until 2016, you could make a lot of money from arbitrage operations. Just buy Bitcoin in the United States and sell in Brazil with at least 20% profit per transaction!

See the chart below that shows this inefficiency and its subsequent resolution.

[Image: download.png?strip=all&lossy=1&w=696&ssl=1]
The spread between Bitcoin in Brazil and the price of Bitcoin abroad has already reached more than 40%. Source: TradingView

There was a big premium between the price of Bitcoin in Brazil and abroad. Few people were able to buy abroad and sell here, so the premium was huge. Obviously, this became a full plate for trading desks at banks and large exchange offices, which quickly took advantage of these opportunities.

This more professional profile started to arbitrate a lot of Bitcoin and, naturally, this goodwill plummeted almost overnight, closing the gates of opportunity for “easy money”. We still have a small premium between the price of Bitcoin abroad and the price here, but only those who have a good discount on the exchange can take advantage.

Not that this is bad, on the contrary, who wants to buy Bitcoin can now pay cheaper. In some cases, the arbitrage is so great that the price here is cheaper than that abroad. The global Bitcoin market has become more efficient, not to the same degree as the traditional financial market, but the progress is already notable.

Is there still room for amateurs?

Getting money out of the bitcoin market is not easy. You can continue to “operate by hand”, but you will be at a clear disadvantage, from the time you set up the strategy, until the moment of executing orders. But it is still possible to make money from trade, at the cost of much study and hours of dedication.

Arbitrating manually is very difficult. Today, profit is only achieved in exceptional situations on the market. Trade is also possible, as long as you don't get stuck in 5-minute scale charts, where robots easily dominate.

Now, we are reaching a phase of the market where the most prudent will be to "do nothing", believe in the strategy and wait, just as it is done in the stock market. Honestly, I believe this is the biggest difficulty: operating is easy, investing is difficult. Bitcoin traders are improving with each market cycle.

by Miu Lin 

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