The majority of peopledon’t consider trading a “serious” activity. The quite low percent ofsuccessful traders that managed to earn cash in the long-term justifies thisconviction. For example, Nasdaq says that nearly 90% of day traders lose theirinitial investments within 6 months.
It seems to be impossible to beat the market and reach a decent level of monthly income as a day trader. At a first glance, this resembles the situation when a person comes to the casino and eventually blows all the money, since the advantage is always on the casino’s side.
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This is merely a cursory glance, although there are lots of traders who enter the market having that mindset. Crypto trading has much higher volatility (10% of bitcoin vs. 1% of Forex on avg.) and less predictable factors that influence cryptocurrency prices. Because of this, novice crypto traders are more inclined to “bet” on bitcoin yearning to get fast cash. Such a mindset is called “casino mentality”, as it doesn’t involve neither prior education nor adequate risk hedging.
What is Casino Mentality?
Astonished by the tremendous bitcoin’s rise from $0.1 to $20,000, XXI century bounty hunters are massively joining the ranks of crypto traders. They pray for the same fate for other cryptocurrencies, hoping to hitch the jackpot with a one dollar investment and zero understanding of the market functioning.
Sticking to thatphilosophy, almost 100% of them fail. Casino mentality is when you try to turna Forex, crypto, or stock exchange into a roulette table. And since yourtrading process is merely a gambling session, you’re destined to lose as casino always wins in the long run.
Another aspect of casino mentality is a small desire for mastering trading skills. Novices want their riches here and now, just like gamblers anticipate the win without even learning the odds. They bet on a random number and cross their fingers while the wheel is spinning.
This mentality hurts both the market and the wallets of inexperienced traders. Those traders wash out with empty pockets, while the crypto prices drop low due to heavy selling or other mass manipulations in response to hyped news.
Why Crypto Investing is Not Gambling?
The things that unite crypto investing and gambling are the fair share of risk, high level of uncertainty, and a chance to become very wealthy (or very poor). Still, there is a number of differences between them that almost nullify that resemblance:
- In gambling, there is a house or an institution which grows business by making you play their games. In crypto trading, there is no institution that can either take your loss or control the prices. Cryptocurrencies are born from the blockchain technology, which implies a decentralized regulation of all operations. It means that nobody and everybody regulates the crypto market at the same time.
- You can roughly estimate the outcome of your investment, while most bitcoin casino games you’re entirely at the mercy of fortune. The only exceptions are games that also require skill — e.g. poker. The starting hand always remains random, though.
- There are numerous ways to mitigate risks in crypto trading or investing. For example, experienced traders diversify their portfolio hedging against losses and don’t take any actions during the binary events when the chance to make a profit is only 50%. In gambling, you can also reduce the risks by decreasing volatility of the game, but you still will be losing only slowly.
Even though crypto trading shares some common peculiarities with the games of chance, it has never been gambling in its essence. Still, the crypto-associated activity where “casino mentality” is quite appropriate exists and is called bitcoin gambling.
Bitcoin gambling is built on the same principles asregular gambling. The only distinction is that you make a bet with bitcoin(fortunately, not on bitcoin as we previously mentioned) and win money inbitcoins as well. Cryptocurrencies are becoming a popular payment method, somore and more casinos that accept bitcoin emerge. Those websites resemble usual online casinos almost completely,except for a few minor differences between them.
How Casino Mentality Affects Bitcoin Price
As it was mentioned before,casino mentality is associated with hot-tempered decisions based on flawedlogic instead of fundamental research. The bright example of how casinomentality can disrupt bitcoin prices is the current state of thecryptocurrency. Three weeks ago, bitcoin dropped to its lowest value this year.
As of December 16, 2018, the bitcoin’s price hit the bottom and comprised as low as $3,194. Some people say it couldn’t have been otherwise because bitcoin is just the big bubble, others blame the hard fork chain split of Bitcoin Cash that happened one month before.
Yet, the human factor provided critical input for the meltdown. Heavy cryptocurrency selling at leveraged exchanges in Asia was one of the causes for the price sliding down. In times of the major bitcoin crash, it’s hard to hold yourself back from its sale when you own the cryptocurrency as borrowed funds.
Michael Moro, CEO ofGenesis Global Trading in New York, commented on the situation that it’s casino mentality at its best.
How to Beat Casino Mentality?
The crypto market is in decay, and it’s not clear whether it is going to rebound soon. In the meantime, traders have a great opportunity to reconsider their attitude to crypto investment and develop solid skills that can help them succeed in the future.
Trading tutorials (Coindesk’s crypto trading 101), books (The Cryptocurrency Investing Bible, The Internet of Money), crypto analysis archives, and even biographies of legendary traders (Jesse Livermore, Nick Leeson, John Paulson) — all those materials can serve as a great starting point. The educational path is not easy, although it’s the only one that leads you to consistent profits on the crypto exchange.
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