Cryptocurrency trading is still in its infancy in relation to traditional asset classes, which tend to have more clearly defined price patterns.
Due to the inherently volatile nature of the cryptocurrency industry, there is a serious risk of blowing an entire account due to a sharp price movement.
The following are some of the nightmares that professional crypto traders have to contend with on a daily basis.
#1. Lack of Liquidity
Liquidity is undoubtedly the biggest issue when it comes to cryptocurrency trading. Larger traders have a more pressing problem as they are obliged to do business on bigger exchanges, which can fill their orders. After a number of days of unfulfilled orders on a platform, traders will simply stop doing business with the same exchange.
Third-party agreements are in place with liquidity providers to work around the issue. However, the larger exchanges are often the last to integrate newer coins with great potential.
#2. No Access to Hottest Coins
In certain instances, there can be some very lucrative coins with a promising concept and a strong team. Unfortunately, some of them are only accessible on certain exchanges after the Initial Coin Offering (ICO) has been completed.
This can be for a large variety of reasons. New coins have to adhere to KYC specifications with cryptocurrency exchanges and must show that there is interest in the coin, which could lead to a reasonable trade volume on the platform.
The promising new coin that a trader reads about can prove difficult to find on the most well-known platforms. However, watching the asset shoot through the roof in value can be hard to stomach for traders, who missed out on a serious market opportunity due to lack of market access.
#3. Fake News and Hype
The cryptocurrency market is denoted by hype and outright false claims. Many new crypto networks have nothing but a whitepaper and claim to be able to solve the world’s problems – even without a working prototype or proof of concept. Still, even experienced traders fall for this fake news. People are afraid to miss out on the next best thing.
However, it is not just the mere gullibility of investors that is the issue here. There are no reputable benchmarks or standards for the analysis of the viability of a particular cryptocurrency network. ‘Shilling’, or falsely promoting a new coin, is basically industry standard. From one perspective, much of the industry is built solely on promotion without demonstration. Examples:
- IOTA will facilitate a machine-to-machine Internet of Things economy.
- Bitcoin will replace fiat currency in a state of hyperbitcoinization.
- Ethereum will create a fully functional DAPP development ecosystem.
These things might be true, but they will not materialize until, at the very best, 5-10 years, if they even happen at all. Yet their price can skyrocket based on the idea that it will definitely happen in the near future.
#4. Mismanaged Projects
Some cryptocurrency projects are based mainly on fake news; others are completely crooked, designed to defraud investors. More are simply badly managed and likely to fall apart. One of the biggest ICO projects, Tezos, is facing a class-action lawsuit based on managerial in-fighting and the fact that an ex-banker, heading the project, stole investor funds.
There is no way to predict these occurrences due to a lack of regulation in place, so traders can miss out. After all, one would think that investing in the largest ICO project at the time would prove a safe bet – but this was not the case.
#5. Pump & Dump
Pump and dump schemes are a classic scam where the inventors sell an asset, jack the price up, and cash in. Essentially, what happens is that the entrepreneurs (i.e criminals) behind the coin hype it up. When the price has reached a certain limit, they cash out and leave the network, leaving the investors with worthless tokens.
Oyster Pearl (PRL) is a typical example. The co-founder printed extra PRL tokens which he sent to the KuCoin exchange to sell them for other coins, right before KuCoin was to implement KYC procedures.
#6. Price Manipulation
Price manipulation is easy to engage in for ‘whales’, who have huge resources at their disposal. These investors can place large buy positions on a particular cryptocurrency. Regular traders will see that this position has been placed, and will place similar buy positions for a lesser amount.
This shoots the price up, the whales cash in on the price spike with a sell order, and the cryptocurrency soon falls. This is a primary reason for cryptocurrency price volatility and an easy way for inexperienced traders to lose their funds. Professionals may fall into this trap, too.
There have been claims that the Tether stablecoin has been used to spike the price of Bitcoin in December 2017, when it rose to highs nearing $20,000. Research has been released by the University of Texas to support this.
How to Fight These Problems
The best way to tackle these problems is to work with a platform that provides educational resources, low spreads, and is fully regulated with a complete alert monitoring system in place.
You need patience to subtly navigate the choppy waters of cryptocurrency trading. The experience can be attained by putting the appropriate safeguards in place so you don’t make any mistakes. Instead of fighting the problems, it might be better to think in terms of riding the waves of volatility, which you can use to your advantage.
To learn how to do this, consider the Superorder trading platform, designed specifically for pro traders interested in cryptocurrencies. It has built-in automation features to protect your trades and execute them on autopilot.
The Superorder crypto terminal is designed to make it easy to first perfect and then execute your trading strategy. Our ethos is to assist, educate, and facilitate traders in the newly developed cryptocurrency ecosystem.