Okay traders, we need to talk about crypto trading. I get a lot of emails from crypto fans, asking why I don’t cover crypto trading that much on my blog. So here we go.
In this blogpost I will explain exactly why I don’t do much crypto trading (yet). And besides the reasons why you do not want to be trading crypto, I’ll tell you what the alternatives are and what to watch out for when you get started with crypto trading.
This is another mountain of information, so use the table of contents below to navigate.
For me, crypto trading was about shorting Bitcoin
My first real introduction to crypto was early 2017 when the price of Bitcoin crossed $1,000 for the second time after the Mt. Gox drama. I was already trading Forex for a few years and was in a Skype group with a number of other traders who pointed it out to me.
This intrigued me, but I wasn’t convinced of the value of Bitcoin, because it was actually only used by nerds and criminals. In the weeks that followed I read everything I could about Bitcoin and blockchain technology. The idea and the tech behind it appeals to me and I also think there is a future for it, just not in its current form. More on that later.
Comparison with the .com and gold bubbles
In May of that year, Bitcoin started its parabolic move towards $20,000. Fed by FOMO and an unprecedented hype. As a trader I who had been looking at charts every day for a few years, I immediately saw similarity with the .com and gold bubbles.
Just look at this:
It was really bizarre to see that people were still buying at $10,000 and $15,000. In the meantime I was also active on a forum. There I discussed with other traders about trades and of course the ridiculous rise of Bitcoin.
There were even experienced traders who could not resist the urge and bought at the top. Purely out of fear of missing out. In the meantime, my broker offered the option to trade Bitcoin via CFDs and I started looking for a nice entry for my short position.
The big short!
Eventually the dump came which was initially bought up a bit, but then the sell off continued. I didn’t short the exact the top, but opted for the more cautious pullback.
This is the trade I took in March 2018:
Before I opened this position, I regularly explained my way of thinking and what I was looking for on a forum, but many people bought the “bottom” in February and kept hoping for price to go back to $20K.
Below is a screenshot of a private message I received just after the 2nd dump:
This was certainly not an easy trade. And you have to be mentally strong in order to take it if everyone else tells you you’re wrong!
Shady crypto trading exchanges without any safety net
The reason I could take this trade was because my broker had added a number of cryptos to their CFD selection. I hate the idea of parking my money at one of the crypto trading exchanges. You could risk a couple of $100, but if you want to trade with serious money, you taking quite a bit of risk.
- Nobody supervision from authorities
- No regulation at all
- No guarantee fund
- Big chance of being hacked
- Stories about manipulation
- Limited order options
So a lot can go wrong and there’s zero regulatory backup if something happens. There are plenty of horror stories about traders who can no longer enter their account and exchanges that even manipulate price to liquidate traders. Manipulation is not confirmed and hard to prove, but where there’s smoke, there’s usually fire.
Fortunately, there are also European regulated brokers that offer crypto trading. Usually via CFD (Contract For difference), where you do not own the underlying asset but only bet on the rise or fall of rice. So you do not get the coins themselves.
A good example of such a broker is eToro, which has a nice selection of cryptos.
Other advantages of regulated brokers compared to crypto exchanges are:
- Segregated funds (customers’ money is on separate accounts)
- Guarantee fund (insurance for customers should something go wrong with the broker)
- Strict control of financial watch dogs such as the FCA
Regulated crypto trading brokers with their own wallet
If you prefer to trade real coins or invest for the longer term, then there are also brokers who are regulated by Europe standards and therefore offer much more safety.
eToro is such a broker. They are truly a technology leader and now also have their own wallet. So you can securely trade and buy crypto for the long term.
75% of retail CFD accounts lose money
Note: If you’re buying crypto for the long term don’t leave your coins on an exchange, but on your own (hardware) wallet.
Limited order options with current crypto exchanges
There’s been some progress lately, but at the time of writing, it is still not possible with Binance (one of the most popular exchanges) to set up a stop loss and a take profit order at the same time.
That really makes no sense whatsoever, because it means that you always run a huge risk.
- You just place a take profit order and you run the risk that price will dump much further than you were prepared to lose.
- Or you just put a stop loss and you run the risk that the price will spike while you’re asleep missing your target.
Now, there are a few 3rd party services that offer a solution through an API. But it is completely crazy that it is not built into the platform.
Why on earth would you trade with an exchange or broker where you have to fight with one hand tied behind your back?
Huge volatility in crypto trading
When it comes to volatility, crypto trading is king. Price movements of 50% or 100% per day are nothing out of the ordinary. Especially when it comes to the so-called shitcoins that have a very low Satoshi value.
The knife cuts on both sides with volatility. You can only earn money in trading when prices moves. And the more price movement, the more you can profit.
If you have the right experience and know how risk management works, you’ll probably adjust your position size accordingly. But most crypto traders are beginners and don’t have a clue about these terms, which increases the chance of getting rekt considerably compared to other markets that move less violently.
This is especially true when using leverage. Below is a Twitter bot that keeps track of the liquidations on Bitmex.
Hardly any scheduled news in crypto trading
There is no shortage of news messages when it comes to crypto. With the increase in the popularity of crypto trading, thousands of (so-called) experts, news sites and Twitter accounts have popped up, who all send their own messages into the world.
Everyone can write anything and almost everyone is for sale. That is true in traditional media, but in crypto it seems to be a bit worse. There is always a shiller who wants to plug your shitcoin for the right price.
Of course there are also news sources that are reliable and that you can take into account in crypto trading. Coinmarketcal.com for example, offers a nice overview of events and news that is monitored by the community.
Scheduled figures and earnings reports
In traditional markets, for example shares and Forex, the news flow is a lot more reliable and every day there are planned news releases, that you could trade. These can all be found on economic calendars such as:
You can also see what impact certain news is likely to have and on which asset.
In addition there are also earnings reports for stocks. These are the results that listed companies are required to publish. Again a great tool to use in your trading or to stay out of the market on important news.
Highly dependent on Bitcoin
Let’s be honest. If Bitcoin farts, the entire market moves. If Bitcoin moves up or down quickly, most altcoins dump. When BTC is balanced or moves sideways, you see that some volume goes to the other coins.
This makes crypto trading even more dangerous than it already is.
Because even if you are in a valid trade that fully meets the requirements of your strategy, you can still get f*cked at any moment when Bitcoin decides to make a move.
As I write this, BTC dumps by more than $ 250 within a few minutes and you see what it does with a coin like ADA (Cardano). It drops nearly double in percentage at exactly the same time.
This always hangs over the head of a crypto trader. In traditional markets there are also correlations, but there are enough opportunities to take trades that do not interfere each other.
If you have a long position on Heineken, you don’t have to worry that your trade will be affected if the oil price jumps.
Manipulation by whales and pump & dump schemes
Because the volume is so low and it is easier to get hold of large quantities of a certain token or coin, market manipulation is therefore also fairly easy.
Certainly if you compare this to manipulating a currency or the price of a share. Of course it also happens in traditional markets, but in crypto it is just more obvious. You can see it happening by just looking at the charts.
The less liquidity, the easier it is.
Lack of real world application and therefore no real demand
I’m not going to spend too much time on this, because I think it is clear to everyone that this is the greatest danger in crypto trading. 9 out of 10 coins or tokens have no added value at all.
Because the vast majority of projects don’t (yet) have a real life application. So there’s (apart from the speculative aspect) simply no demand for coins. With commodities or currencies, there is real demand and application. It is simply used every day. Just like the companies behind stocks have actual revenue by producing and participating in the economy.
I am convinced that most cryptos are set up with the sole purpose of extracting as much money as possible from the market. Some are outright scams and with others there is something of a promise, but it is all very very thin and far fetched.
The coins for which there is actual demand (such as the exchange tokens that are needed to get a discount on the trading fees) you can see that there is a somewhat healthier price trend. And that they are also less dependent on the whims of Bitcoin.
The fact that there is no real demand for most coins adds another layer of uncertainty, because if the speculative aspect is lost, the coin becomes worthless instantly.
The pros and cons of crypto trading
So yes, if you compare the pros and cons a bit you will see that crypto trading certainly has some advantages over traditional markets, but in my opinion (at the moment) these do not outweigh the disadvantages at all .
- Easy to start with
- Possible to start with very small amounts
- Hardly traceable, so possibly no taxes
- High volatility, so it is possible to make big profits
- Price manipulation, if you are the manipulator
- Nobody supervises the market
- No regulation at all
- No guarantee fund
- Great chance of hacks
- Lots of unscheduled news
- Shillers who are paid to release news
- Limited order options on platforms
- High volatility, so it is possible to have big losses
- No actual application, so no real demand
- Price manipulation, if you are NOT the manipulator
Alternatives to crypto trading
You can of course eliminate a lot of disadvantages by trading crypto with CFDs at a regulated broker, but you can also opt for other markets.
A good example of this is Forex. You trade in currency pairs as you would in crypto, but the price movements are a lot less erratic and manipulation is much more difficult due to the huge liquidity.
Now I hear you thinking:
Yes nice, but I don’t make any profit with those small price movements!
If you compare it 1 on 1 you might have a point, but by using leverage and possibly a larger position size, you can also make excellent returns on relatively small moves with Forex.
By the way, I see more and more people switching from crypto trading to Forex around me, often with better results.
You can trade a lot of markets including Forex and crypto with this CFD broker:
78,3% of retail CFD accounts lose money
Conclusion and crypto trading tips
Do you have to stay away from crypto trading altogether?
No absolutely not.
There are relatively safe ways to trade this market. I do it myself too. I also firmly believe in blockchain technology, but I do not believe in 99% of the current coins at all. Apart from perhaps Bitcoin as a store of value.
As far as I’m concerned, crypto is now in it’s puberty. It is the wild west right now and everyone is trying to get what they can. Crypto may need this phase to mature and to find the way to global acceptance. We will see.
If you still want to get a piece of the action in a safe way, check out the crypto trading tips below.
- Reserve a small part of your total capital (I have set 10% aside for crypto trading)
- Opt for a regulated broker and trade cryptos via CFD
- If you invest for the long term, keep your coins on a hardware wallet (never leave them on an exchange)
- Don’t chase green dildos (never buy the tops or heavy breakouts)
- Try to short resistances and buy supports
- Watch out with low sat and low liquidity coins (the movements are even more intense in terms of percentage)
- Always use a stop loss to limit your loss
- Adjust your position size to your stop loss
- Always trade with a risk to reward of 1:2 or higher
- Do not trade on emotion or hope, trade what you see and according to your trading strategy
Feel free to ask your questions about crypto trading in the comments below and don’t forget to share!