The cryptocurrency markets are abuzz with activity. From novices to seasoned investors, everyone wants to be a part of the crypto frenzy. While the extreme volatility has kept some investors on the edge, others have made use of the same volatility to make some quick gains.
However, like every other market, the cryptocurrency market has its list of benefits and risks, and investors/traders invest/trade depending on multiple factors such as the capital involved, their risk-taking ability, the price outlook, among other things.
Based on their investing and behavioural profiles, cryptocurrency investors can be broadly categorised as follows:
- The Crypto-Curious Beginners: These are novice investors interested in dabbling in the crypto market probably because they stumbled upon its performance when it was booming. They are not privy to the high volatility and can even add to the market volatility as they are prone to make decisions based on emotions rather than solid underlying factors. They are also usually unaware of the potential downsides to investing in cryptocurrencies. There are risks associated with all sorts of investments, and not all cryptocurrencies show market indices-like movement.
Market developments can easily overwhelm crypto beginners. A cursory look at the current situation in the world of crypto is enough to create panic, especially since it is going through a period of correction and prices are at one of their lowest levels in months. In just over a month, for example, nearly $1 trillion in crypto market cap has been wiped out.
Without the advice of a professional, crypto beginners are also vulnerable to misinformation. It is imperative that they seek clarity so they can sieve out the good information from the bad. It is also advisable for such investors to not bite more than they can chew – only invest what you can afford to lose.
It is crucial for crypto-curious beginners to first educate themselves about the fundamentals of cryptocurrencies they wish to invest in and do the due diligence before deploying any money.
- The Crypto HODLers (Long term asset holders): This stratum of investors has already dipped a finger in the crypto market, and some of them have possibly been burnt a few times too. However, they still lack the necessary acumen to make profitable calls on a consistent basis.
Their inability to trade effectively results in them holding on to their crypto assets even through the market turmoil. Hence, HODLers are fully aware that the crypto market works in cycles just like the stock market, which means they are mindful of the inevitable downtrend that follows a rally.
HODlers believe they will be rewarded in the long term when the value of their assets will be significantly higher. They are always waiting for the market highs to liquidate and make profits.
Since HODLers can survive market shocks, some even disregard the need to cash out in the long run. This is fuelled by their hope that cryptocurrencies will eventually become accepted payment modes and won’t have to be sold.
Why the term HODler? It is believed to have been an inadvertent error in typing that some believe later started getting used as an abbreviation of ‘Holding on for dear life’. The real origin is not exactly known.
- The Crypto Veterans (Traders): Investors who have dilly-dallied in the crypto markets through all the highest crests and the deepest troughs know precisely what the market has in store. They can identify the right moments to make buy/sell decisions such that they always beat the average investor and make money irrespective of the direction in which crypto prices move.
Usually, these guys transact in large volumes to realise hefty profits from their buy/sell decisions and are also referred to as ‘crypto whales.’ They may also be the educators/advisors to the above two categories of investors, seasoned by their vast experience.
Crypto natives are keen on building a robust portfolio that generates sizeable returns in the long term. Their area of focus is seldom survival, and they are in it to capitalise on the profit-booking moments.
Such investors typically have the stomach for high-risk, high-return transactions and comfortably navigate their way through market downturns. They remain updated to maximise their chances of profiting when they enter/exit their investments at a time of their choosing.
It is important to note that these are only the broad categories of investors and multiple factors can drive which list an investor should fall in. Investing in the crypto market is like investing in the stock market with two key differences: (1) the fundamentals vary drastically, and (2) the volatility is significantly greater.
However, investing in either asset class requires thorough reading and gaining an understanding of the underlying principles that govern its price movements. Like in any other investment, it is only through thorough research and experience that one can become a veteran.
(Edited by : Jomy Jos Pullokaran)