Since cryptocurrencies went mainstream in 2017, you can now find a wide range of investors in the crypto asset market.
In this article, you will discover the seven most common type of investors you will find in new finance so that you are aware of who you are dealing with when you execute a trade.
The newbie just discovered cryptocurrencies but already has all the best trading apps installed on his phone and has started to check the price of bitcoin on an hourly basis to see how much he has made in profits so far.
Newbies tend to follow the crowd and, therefore, also panic sell easily when prices drop by 10 to 20 percent in a day. While newbies are great for the cryptocurrency community as they mean adoption is on the rise, they can add to market volatility as they tend to buy when everyone’s buying and sell when everyone’s selling.
The Overenthusiastic Millennial
Similar to the newbie, the ‘overenthusiastic millennial’ has only recently entered the market but has already built a promising – albeit small – digital asset portfolio of all the “hottest” new coins on the market.
The ‘overenthusiastic millennial’ follows all the “crypto celebrities” on social media and is eager to talk to his peers about which coin to buy next in the hope to become a bitcoin millionaire in no time.
The Institutional Investor
The institutional investor, on the other hand, is an entirely different animal. Institutional investors in the cryptocurrency market come in two forms: crypto funds run by early bitcoin adopters and funds that have only recently ventured into this new asset class in the hope to generate exuberance returns.
Longstanding crypto funds such as Pantera Capital and MetaStable Capital have been actively investing in the digital asset market for years and have strong track records of making the right market calls. They are among the investors who know when to get in and out of a trade at the right time.
Newer digital currency funds are often run by investment managers who come from the foreign exchange or equity markets and thus lack crypto experience. These funds tend to buy the “blue chip” coins with the most liquidity. Hence, the more new digital currency funds launch, the more the top coins will likely benefit.
The Pump and Dumper
The ‘pump and dumper’ does what it says on the tin. These folks will purchase a substantial holding in a relatively unknown small-cap coin together with a group of acquainted investors before starting a paid-for promotional campaign for this coin on social networks and in the blockchain media until the price of the coin has hit the pump target price. Once enough other investors have bought into the “future success” of this coin, the pumper and dumpers will sell their coins to reap a profit while those who invested at a later point will make losses as the price collapses.
Pump and dump schemes are unfortunately quite common among smaller cryptocurrencies. Hence, it is essential to be aware of the ‘pump and dumper’ when trading digital assets.
The Early Adopter
The early adopter bought bitcoin before it was cool. They bought bitcoin at a price of under $100 back when only a few people had heard of bitcoin, and those who have heard of it thought bitcoin was just a payment method for illicit activities on the dark web.
The early adopter can be anonymous, such as the person running the Pineapple Fund, or a blockchain thought leader who actively discusses his or her thoughts on the future price of bitcoin in public.
Early adopters sit on millions in bitcoin and other cryptocurrencies and can have a substantial effect on prices when they execute large trades. Having said that, early adopters, such as Tim Draper and Charlie Lee, can also move prices by merely posting a tweet about a token or coin. It is, therefore, recommended to follow these people on social media and stay up-to-date with their latest projects.
A whale is an investor who has deep enough pockets so that their trades can affect the market price of the asset they are trading. Bitcoin investors are considered whales when they execute trades the size of 10,000 or more.
A large percentage of whales are early adopters who invested heavily in bitcoin in the early days. However, there are an increasing amount of institutional investors as well as ultra-high-net-worth individuals who are now trading large blocks of bitcoin in the hope to profit from the digital assets’ high volatility.
Whales have the power to substantially move the market, which is why it is smart to look out for them when looking at exchange order books. However, they have become more difficult to detect as more and more whales are now choosing to trade cryptocurrencies using OTC brokers such as Circle and Cumberland instead of digital asset exchanges to hide their trading activities from the public.
Finally, we have the HODLer. The HODLer is probably the most known cryptocurrency investor and can come in all shapes and sizes.
The term “HODL” comes from a now-famous Bitcoin Talk forum post, where a bitcoin investor said he was going to hold on to his bitcoin investment despite the price drop but misspelled the term hold by writing “hodl”. Some also say that the term HODL stands for “Hold On For Dear Life”.
The HODLer can be a large or a small investor, an early adopter or a newbie, or even an institutional investor. It is simply an investor who believes in the future of cryptocurrencies and is willing to hold onto his investment throughout the volatility as he is in it for the long-run.
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