It has been a while since the cryptocurrency market went mainstream. There was a time when only a small sect of people used to trade in cryptocurrencies. Investors nowadays are not so oblivious as they once were when they were mainly dependent on stock market and commodities. Cryptocurrencies are omnipresent these days and investors are getting smarter. If you have taken a plunge into the world of cryptocurrencies, you need to be aware of whom you are dealing with while executing a trade. Here are ten common types of cryptocurrency investors you will find.
These are inexperienced investors. Don’t be surprised if you realize that cryptocurrency is their first major investment. They usually make mistakes because of their inexperience, which causes them to lose money which in turn might make them lose their willpower for investing further. They will easily drop out when things go bad. They mostly sell when the market is going down and buy when the market is going up. They are worried about losing money; they cash out during tough times and think that the market would never recover. This is the norm. Most of them start off like this. The only way to overcome initial failures is to hold steady, have a little patience, and follow some expert advice.
Get Rich Quick Investors
These investors are likely to be inexperienced, too. They believe that investing in cryptocurrencies will make them rich quickly. They don’t take their time to research and don’t really understand much about cryptocurrencies, and they mostly do not care to understand in detail. They hear about someone who made millions by investing in cryptocurrencies and they jump on the wagon, hoping to get rich in days. Hoping to make money is not a bad thing (don’t we all want to make money?), but investing one’s hard-earned money into something without understanding the ins and outs of it is foolishness. Unfortunately, these get-rich-quick investors make that mistake and fail miserably. In the end, they blame the cryptocurrency market for being unreliable. These are the type of investors who shout that cryptocurrency is just a fad and not a real thing.
Long Term Investors
These types of investors, as the name suggests, are in for the long haul. Most of the cryptocurrency investment experts fall into this category. They understand that dips in the market are quite natural and instead of crying over it, they use the opportunity. They buy low and sell high. The goal is not to make money quickly, but to accumulate a substantial wealth over a long period of time. Thus they research and strategize; they are patient. They buy as much as possible and hold on to them until the cryptocurrencies mature. Most of the millionaires belong to this category. They bought Bitcoin for dirt cheap and waited years for the price of Bitcoin to skyrocket.
Short Term Investors
Volatility could be both the best and worst thing of cryptocurrency markets. If you know what’s it going to be for a particular coin and play it well, it would make sense to buy it and sell it in a short time and book a profit. Short term investors play the market on a regular basis. Some play it daily, by the hour. They buy low and sell high in a short period of time.
They don’t have any lofty ambitions to make millions. They are satisfied with 1-4% profit on a regular basis. They don’t take too many risks and don’t hold coins for long. They sell the coins the moment they see a small profit. Even when the markets are down, they play well and book a profit, however small it may be. They buy coins now and sell them within a month when they show a slight increase in price.
Chance investors are those who look for undervalued coins and invest a few hundred bucks or thousands in them and hope that the (undervalued/unknown) coins’ value will increase substantially one day. Chance investors, as the name suggests, do take chances, but they are not as naive as get-rich-quick or new investors.
Chance investors are quite experienced and use their knowledge to level the odds in their favour. Small investments in unknown coins can make you a small profit; it can also go big. Worst case scenario: you lose a few hundred bucks. Either way, you have nothing much to lose. Understand that a few people who invested in Bitcoin years ago and held onto them are now millionaires.
Whales are big investors who have deep pockets. Their decisions to sell or buy can affect the market price of the coins they are trading. Bitcoin investors are whales when they execute trades in the size of 10,000 or more. Most of these whales are early adopters who invested a great amount of money in Bitcoin in the early days. Apart from individuals whose net worth is substantial, there are also institutional investors who trade large blocks of Bitcoins and hope to profit from the assets’ high volatility.
Whales can move the market in any direction they please. Thus, it is important to look out for them when you are looking at exchange order books. They are, however, more difficult to spot as they are now trading in cryptocurrencies using OTC brokers in order to hide their activities from the general public.
The Institutional Investor
Institutional investors in the world of cryptocurrency come in two major forms: cryptocurrency funds run by early adopters and funds that have ventured into new assets recently, hoping to book exuberant profits.
Some prominent crypto funds such as Pantera capital have been investing in cryptocurrencies for years now and have the reputation of making the right decisions. They know when to get in and when to get out at the right time.
Newer crypto funds usually come from investment managers who are well-versed in foreign exchange or equity markets, and thus lack the experience in the cryptocurrency market. They mostly buy ‘blue chip’ coins that have the most liquidity. In the end, it is safe to say that the more the digital currency funds are launched, the more the top coins will benefit.
The Early Adopters
The early adopters bought Bitcoin before it became popular. They bought Bitcoins at a price of under INR 10,000 back when not many people were aware of Bitcoin. And those who were aware of it thought it was some kind of illicit affair on the Internet. The early adopters, however, were shrewd enough to understand Bitcoin’s true value and to invest in it.
These early adopters can be anonymous. Blockchain thought leaders, for example. They sometimes actively discuss their thoughts on the future of cryptocurrency prices in public. They invest a substantial amount in Bitcoin and other cryptocurrencies and can have a major effect on the prices of those digital currencies when they execute trades. Two prominent early adopters are Tim Draper and Charlie Lee. They can influence the market just by merely tweeting about a particular token or a coin. So it’s important to follow such people on social media and stay informed about their latest projects and take their opinions seriously.
The Pump and Dumper
These types of investors invest a huge amount of money in an unknown small-cap coin along with a group of other well-acquainted investors. They do this before starting a paid-for promotional campaign for that coin on social and blockchain networks until the price of the coin reaches a target price. Once other investors get enticed and buy the coin, the pumper and dumpers sell their coins at a higher price. This causes the price of the coin to drop substantially. The investors who invested in the coin at a later stage will book a substantial loss.
These kinds of investors are, unfortunately, quite common among smaller, relatively unknown cryptocurrencies. Hence it is important to be aware of such pumper and dumpers while trading unknown/undervalued digital assets.
The HODLers are the most common type of cryptocurrency investors and can come in all sizes and shapes. Interestingly, the term ‘HODL’ comes from a famous Bitcoin Talk forum post where an investor said he was going to hold on to his Bitcoin despite a major price drop. While doing so, he misspelled the term ‘hold’ by writing ‘hodl’. Some also say that HODL stands for ‘Hold On For Dear Life’.
Either way, the HODLers can be small or large investors, newbies, institutional investors, or even early adopters. Put simply, an HODLer is an investor who believes in the future of digital currencies and is willing to hold on to his investment despite the price drop, despite the volatile nature of the market, as he is in it for the long haul.