Monetary policy has generally been inflationary over the course of the last century in the United States. Local banks funnel to a centralized private bank known as the Federal Reserve which controls cash output for the rest of the country. Recently, that output has increased exponentially causing panic amongst economists and investors all over the world. As a result, money supply has skyrocketed to all time highs ten times the size of previous records and markets have become more volatile as ever.
For stock traders and Wall Street, this is an absolute frenzy of a time period as they are able to predict markets by taking advantage of government bailouts in the form of quantitative easing. For the regular day trader without direct insights, however, this is a time riskier than ever as predictability is at an all time low.
That being said, this was not always the case. (Successful) day traders have historically come out on top with their keen market analysis and “graph-reading”. This is mostly due to predictable markets that often followed patterns that could be followed by anyone with access to google images (that’s not to say it’s very accurate).
Now, that strategy is more ineffective than ever because of the introduction of cryptocurrencies. Entirely new monetary policy is being adopted and a new financial system is coming into place. No longer are people reliant on the decisions of the Federal Reserve or any government. Mediums of exchange are taking a new form of decentralization.
Bitcoin is on the forefront of this new change. For the first time in history, the common person without any political influence nor any multi-million dollar bank account can take their finances into their own hands without worrying about inflation or manipulation of currencies.
Bitcoin had no initial public offering (or ICO), no financially backed marketing, no powerhouse trusted company behind it but rather was simply a product that people wanted. For that reason, it has become a massive competing currency as well as a store of value that many of the world’s leading companies HODL.
HODLing is a term coined by the Bitcoin community as a way of saying that you are “in it for the long term”. Although many people believe that HODL stands for “hold-on-for-dear-life”, it was originally just a spelling mistake made by a passionate Bitcoiner on the Bitcointalk.org forums in 2013. Since then, the Bitcoin (any cryptocurrency) community has been using this term to describe their full trust in the future of Bitcoin.
With that being said the upbringing of a new digital asset has brought with it a new era of traders that dilute the percentage of true HODLers to only about 43% of crypto-investors. This is because an abundance of exchanges allows for trade volume to be uncapped hence a crypto version of day trading emerges.
This “day trading of cryptocurrencies” usually takes place on the Ethereum blockchain. This is because of the abundance of ERC-20 stable coins that allow traders to quickly exchange in and out of other Ethereum based cryptocurrencies.
The Bitcoin protocol has no such thing (or at least is not as popular as Ethereum stable coins). Instead, investors stick to a more long term and calculated approach. Many economists see the flaws in the current banking system like fractional reserve banking and QE while regular investors HODL out of trust. As GameKyuubi said:
“BTC crashing WHY AM I HOLDING? I’LL TELL YOU WHY. It’s because I’m a bad trader and I KNOW I’M A BAD TRADER.”
GameKyuubi also notes that “You only sell in a bear market if you are a good day trader or an illusioned noob”, which is something that many regular Bitcoin maximalists believe. They know that the general trend for BTC-USD (in nominal terms) is headed higher and that over time, purchasing power will increase as the potential does.
At this moment, the lack of day trading skills is insignificant for increasing purchasing power through cryptocurrencies. Volatility is still relatively high and new coins are being mined every day. It isn’t until around 2030, when 99% of all possible bitcoins will be mined, that trading will become more profitable than HODLing. Many people believe that they have missed the boat and cannot buy BTC however 2021 is still early.