If you’ve never heard of the old “up the down staircase” principle of how and why big investors get rich, it’s fairly simple.
Any sort of investment has its own cycles of market volatility. The smart money tends to sit back and wait while a down cycle makes itself felt in the market. Meanwhile, flightier investors with more to lose are panicking and pulling their money out.
After things have settled, the smart money buys on the dip, and a rally ensues. The more cautious investors who have already been fleeced once (or more than once) buy only after sustained rally activity, and often near the crest. Then the cycle repeats itself…
Some analysts are suggesting something very much like this is happening with Bitcoin.
In a report on BTC this morning, Muyao Shen at Coindesk presents a chart of market activity by volume, suggesting that Bitcoin whales are buying on the dip and taking profit after a rally, while what Shen describes as “retail investors” are buying on the rally and unloading when times get tough.
“Trading data of the bitcoin/tether pair on OKEx’s platform between August and November showed that during the November bitcoin rally, whales’ such as individual investors with sizable holdings and, potentially, institutions were taking profits by selling their bitcoin,” Shen writes, providing a timely example. “During that same month, smaller-sized traders, such as retail investors, continued buying as they did in September and October, despite higher prices in the oldest cryptocurrency, according to the report compiled by OKEx and blockchain data firm Kaiko.”
Another aspect of this, according to some expert analysis, is that the two different types of investers also operate in different environments, with their own user trends and limitations.
“(Over-the-counter (OTC) desks) have increased two-way markets as more counterparties are on-boarded, allowing them to match buyers and sellers more directly to have less impact on markets,” says TradeBlock’s John Todaro, according to Shen’s reporting. “Smaller institutions or whales, though, may be less reliant on OTC desks and more likely to utilize exchanges, even placing large market orders that could have a larger immediate impact on price.”
All of this is useful fodder for someone’s portfolio, especially if they fall into that “retail investor” category. If you have been losing big on BTC, it might be time to take a beat, sit back and re-evaluate.
