The recent rise of cryptocurrency markets has been fascinating to watch. It's a highly volatile market fuelled by rampant speculation, clickbait headlines and a lot of old-fashioned misinformation. However, despite all of these characteristics, there is one feature of cryptocurrency markets that make them so fascinating to me and why I believe they will prove to be so profitable in the future...
For context it's important to note that my background in investing comes from trading and investing in stocks, which I've been doing for the last 2 years, hitting double digit returns in my portfolio. These returns, while strong, are nothing compared to the rise of cryptocurrencies this year.
While comparing the stock market to cryptocurrency markets isn't exactly a like-for-like comparison the most fundamental difference and the one I find most interesting is the contrast in their investor make-up. Stock markets are dominated by high frequency traders, pension funds, banks and hedge funds and they have all of the control.
By contrast crypto markets, for the moment at least, are dominated by so-called "retail investors" which are just average persons who have decided to jump on the crypto train. This excites me. Why is this? Because it means the barrier of entry to being the "smart money" is dramatically lower than in the stock market. Nothing made this clearer than the recent "crash" in the last day or so. Retail investors everywhere, as evidenced by social media commentary and Google search trends, all panicked and contributed to the sell off.
The presence of these types of investors who are driven by emotion and headlines means that more seasoned investors are presented with an amazing opportunity to ignore the noise, take the position of the smart money in the market and lock in some profits.