How the member-stop on exchanges might be the cause of a bursting bubble.
For a couple of months now, I am member of a Digibyte (DGB) telegram group for people from the Netherlands. However, this post is not about DGB in specific. It is about a picture that was sent by a fellow DGB-lover which made me think about crypto-bubble rumors and speculations. Before we get into this, I would like to state that I am not an expert on economics. I am like, I guess the most of you, just a moderate crypto trader who is eager to get the hold on the latest developments in the market. I started trading about a year ago, and my purpose with this post is to start a disunion concerning the title of this post.
Firstly, the picture I referred to:
Now I guess we all read/heard/spoke about the alleged bubble we're in. Some state it's just a situation like we've known before, others say that - mainly because of the mass attention the market gets nowadays - the effects of a bursting bubble with put a hold on trading in crypto in the future.
My concern regarding the above shown image is the following. Because more and more people are getting interested in - and are willing to invest in - crypto, exchanges cannot provide all these new kids on the block with trading accounts. Once they will be able to do so, a lot of new money (as the pictures says) will flow into the market. What will happen? People will start investing in bitcoin and alt coins on a massive scale. The prices of coins will rise to new all-time-highs which presents loads of opportunities to make some decent money, especially for those who have been around for a longer time. At a certain point, the people who just started investing, will notice that they have been pumping prices and want to take 'profits' of the table. Those 'billions of money' that have been pumped in the market might be taken out as quickly as they got in. This will cause a drop of value which may lead to - since it might be a drop of a size we haven't seen before - the 'bubble' to burst.
Of course, like all of you I hope this will not happen and by posting this article I do not, by any mean, want to create some negative ambiance around something as beautiful as crypto.
Like I said, I just hope we can have a discussion concerning the above mentioned statement. Looking forward to your replies!
It is worth reading Mackay's "Memoirs of Extraordinary Popular Delusions and the Madness of Crowds", a book written in 1848 and a classic reminder of how crowd psychology easily leads to irrational behaviour. The problem is that the irrational behaviour is only evident after disaster has struck.
What keeps people from cashing at least some of their money out, is simple greed. The fear that someone will benefit from your sale, even though you have already made a substantial profit. No market can continue a constant upward trend, the trick is to cash out in trenches ensuring that if the worst happens you do not lose everything. By all means keep some investment in the market, but keep it proportional to the evident high level of risk.
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