Reading your Coin's Chat

I'm always reading chats and what not trying to get a feel for sentiment with my particular coins and tokens in my portfolio and to see how market sentiment is doing. I'm sure you do the same thing. A bull market is exciting - full of highs and lows as gains post intermittently and the harrowing drops that bring on the pink Wojacks. Here are some things I've run into...

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For the most part we in the crypto world are beholden to the news cycle. In fact, it's one of the few areas of investment that still responds to any news coming out. For the most part it's fear, uncertainty, and doubt (FUD) that drives the price down of any particular asset and the level-headed "Here's what actually happened..." that gets the price back on track to recovery. As any market historically has done, the drops can be quick and painful. The gains slow. However, with crypto as they say, "Anything is possible."

But that isn't necessarily the case. What I have noticed, in general, is that there is a great deal of panic selling and a belief that the whales are benign protectors of crypto appreciation and, at times, the great market manipulators attempting to drive prices down so that they can accumulate. In truth, it's tough to say if that actually happens because almost everyone's version of what is going on behind the scenes is self-serving and probably prone to confirmation bias. In reality and taking things prima facie, the market likes to respond to the news Occam's razor-wise.

In the ebb and flow of things, generally you'll see people cheering their heads off on the chats when sentiment turns bullish. When things start to go wrong you'll see people losing their minds. (Obvious, I know.) If things go very wrong you'll see the cryers come out and say things like, "I mortgaged my house and now I've lost 50% of everything." Whether that's true or not and whether that person is larping (live action role playing) or not is up to interpretation, but it seems the ups and downs of crypto are summarily more dramatic and personal than the average investor's ETF trading chat group. The key thing here is that crypto investing is intensely personal because there's very few institutional investors involved.

But how do you interpret the chats? It depends on your goals and what you're overarching thesis is on the crypto market. The latter criterion is particularly important because it is the lense through which you'll view any chat's information.

For instance, if you are bullish in general for the valuation of crypto because you think it's an exciting new technology that may end up changing the world OR that it's a speculative investor's dream because people are losing their minds over it for little to no reason OR that it represents a real chance to displace central banks OR even if you think it's in a growth phase predicated on central bank liquidity THEN you are buying hand over fist.

On the other hand, if you're investing in crypto to short the market you probably think governments are going to outlaw it OR love the big FUD cycle that forces weak handed panic selling OR even you like the technology but think eventually the whole market itself will decouple from BTC and there's even more volatility in the offing THEN you are selling on the highs. (This particular approach is difficult in crypto because to sell on the highs you must first have bought in. In general, there's money to be made on both sides of the market.)

So what do chats tell us?

• Easiest way to pick entrances to buy is to see in a chat when the group is going negative. You'll see a few FUDers here and there eventually picking up in frequency as they either by design or by accident drive selling. When the defenders in the chat capitulate it's probably a good entrance to buy. One phrase that's great to determine capitulation is, "Well, if you don't like coin XYZ then get out of here," when the coin is in a downtrend. Exasperated hodlers are attempting to shake out the weak hands and speculators, but everyone is witnessing a dramatic downtrend.

• The opposite does not hold true on the sell side. What you will see is an initial phase of excitement - the real crescendo is when people keep checking the price or mentioning the price. It'll start to stall out as people reel in disbelief. Finally, late in the uptrend you'll see an influx of new people into the chat. That is a solid sell signal. Also, when people start congratulating themselves then boom you'll see some correction take place as profit-taking starts to get underway.

As a side note, it's incredibly difficult to time tops and bottoms. It's better to catch trends. And the chats are a vehicle to do so.

On a personal note, although I think sentiment trend following has its merits what we have seen lately is the entire crypto market stubbornly beholden to BTC's value and price action. So, that makes coin picking more difficult as every asset goes down at the same time and then when BTC is in an uptrend - only then - do coins differentiate themselves among the group. As a global way of looking at things, sell on BTC highs and diversify into ICOs and real gainers in a BTC recovery. Until BTC loses its identity as the proxy value for all of crypto please act wisely.

We're all gonna make it!

Minderbinder

[Disclaimer: All the opinions expressed in this article are my own and are in no way meant to be construed as investment advice. Please exercise your own judgement in any investment or money management ideas that you happen to undertake in the traditional finance or cryptocurrency spaces. All images come from either personal files or websites that allow free images and each has an inline citation for reference. Good luck out there!]