A year trading digital assets can feel like a lifetime. Crypto markets react instantly to the constant barrage of information being broadcast throughout the ecosystem. Technological advancements, institutional adoption, regulatory guidelines, and platform hacks fill the industry’s headlines each hour. Every development confronts traders with a decision- ‘how will the market react to this news?’ While access to a vast amount of information allows for a diverse perspective, it also creates constant uncertainty, FOMO, hype, and general confusion clouding traders decision making process.
Market signals come in a variety of formats, across an even larger variety of channels. Developing an understanding of these signals takes a basic knowledge of how to interpret them, which can be challenging enough in a space as technical, nascent, and opaque as cryptocurrencies.
Yet, beyond understanding the signal, traders must anticipate how other participants will interpret these signals as well. Traders are constantly evaluating how the collective understanding of all market participants will translate into asset prices. This deep understanding of market signals and investor reactions takes time and experience to develop but is necessary while managing a portfolio of assets. Cryptocurrency traders need to invest just as much time into understanding game theory as the potential of their portfolio of investments.
This understanding of self and others can only be developed through experience. CRYPTO.COM and Overbit both recently published market research reports that aim to nuance cryptocurrency trader demographics. Overbit’s survey of approximately 2,500 cryptocurrency traders found that nearly 75% had less than 1 year of experience. Yet only 58% of all respondents categorized themselves as a “novice" trader, indicating that many of these traders may be overconfident in their qualifications. Based on Crypto.com’s survey of nearly 16,000 crypto traders, the results show that people had 2.35 years of experience trading crypto on average.
This is obviously a spectrum. Both studies had respondents with over a decade of experience, who have witnessed never ending volatility and market uncertainty of the past years. They have been exposed to the market for longer, likely developing a more informed familiarity of not only the response to emerging information, but also their ability to handle stress. While experience is no guarantee for returns, it does inform traders ‘game’ mindset as well as their ability to make strategic decisions based on market signals.
While many traders may have cut their teeth during the 2017 bull run and collapse, the results of these studies show that most are still learning how to deal with the inherent stress of trading cryptocurrencies. They have had a limited time understanding the market, its dynamics, pricing mechanisms, and at times, completely irrational players. For many, the only way to truly learn is the hard way; hours of researching, taking calculated risks, and making mistakes. Understanding the role game theory plays in their decision making process may help newer traders recognize their biases and make the more informed investment decisions that come with battle hardened experience.
Learning to effectively trade cryptocurrencies is stressful. There are few shortcuts to developing the experience needed to handle this stress. But an introspective understanding of trader's own thought processes, coupled with a measured evaluation of others’ reactions too, is a necessary step in navigating the inherent stress of trading digital assets.
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