“Another lesson I learned early is that there is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market to-day has happened before and it will happen again. I’ve never forgotten that.”
Edwin Lefevre, Reminiscences of a Stock Operator. 1923.
Can a crypto coin control your emotions?
Imagine you are watching an ICO ripping higher every day.
At first you looked at it lower thinking it was a fad. You hummed and hawed as it went higher still. Then came the articles. Then your friends told you they bought some. So you decided you get some….
Now you’re in!
It’s exciting. A bit rebellious.
As long as it goes higher you are happy…..
But if it goes lower you tell yourself this is a long term asset with huge potential…..but secretly you are telling yourself you will sell as soon as it gets back to even.
On the upside you are a speculator. On the downside an investor.
Then as it falls you reflect on all the ways it could be useful. You dig deeper. Look for justifications to hodl it. To buy even more and average down.
The elation as the price ramps higher is infectious. You are thinking of all the things you can do with your newfound wealth.
When the price drops you feel sick. The price quotes on various service become an obsession. As the losses mount so does the anxiety. You can’t sleep. No appetite.
What you are experiencing is the road that every speculator has walked at some point before you.
In a bull market every reason is a good reason to buy. When something is going up there is no reason whatever that will knock it down. And if it fades it doesn’t stay down for long.
In a bull market any argument is fanciful. No matter how ridiculous or stupid the claim is, it will go higher.
That is the nature of a bull market.
But what if you have an asset that has “potential” but isn’t moving?
What if you have an asset with a relatively small number of shares, coins or tokens issued and outstanding? …..where a relatively small number of hodlers control a substantial amount of the free trading units?
And the small amount that is left for trading is held in few hands, wallets or accounts.
What happens if you have a big position in the issue and you want to monetize it at higher prices?
To distribute it without destroying the market.
What do you do?
You might look to the past to see how the old masters would do it.
Because speculation is as old as the hills. Nothing changes on Wall Street or anywhere else when it comes to speculation and human nature.
Every ICO on the planet is exploiting this universal truth.
Let me explain.
Making a market means understanding the system
Back in 1923 Edwin Lefevre published his now famous book called: Reminiscences of a Stock Operator. The book was reputed to be written by one of the greatest stock speculators of his day. A man named Jesse Livermore.
The book was about the development of his life as a speculator. But one section in particular was especially poignant considering the current ICO mania.
It was the part about how to “manipulate” a stock.
Now hold on a minute. You need a little context.
Manipulate in his day would also be called making a market for a stock.
Making a market for a stock relied on some universal truths.
- Speculation is a natural part of human nature.
- All decisions at their core are based on emotion not rationality.
- Traders by their nature are always looking for activity and a quick profit.
- The media is always hungry for a story to feed their readers.
- The media will attribute almost anything to activity in a market or a stock…..even though they usually have no idea what is going on.
- In a bull market it’s better to be a buyer than a seller.
- Analysis is difficult. Gambling is easy.
- The public is always the last to know.
Livermore goes on to explain exactly how he would use all of these universal truths to create a market and use those prices to distribute the large holdings of his clients.
Why is this guy from 1923 relevant to you and the crypto market today? Great question.
Let me explain.
Coin trading circa 1923?
Take a moment and imagine you have a very large position in a stock. Let’s say you are a founder or a very early investor. You and a group of other large investors may want to lock in some gains, diversify your portfolio or simply “take some off the table”.
The problem is that your stock or asset isn’t moving. It doesn’t trade enough volume to sell even a small amount of stock never mind a huge position.
It may not trade at all.
Sellers will be only to happy to get rid of their dead money to any buyer.
And buyers will disappear if one or several large orders appear in the market at once.
That means selling large positions will result in lower and probably much lower prices.
So what do you do?
The large holders would get together and approach a trader with experience and a reputation for running an operation. Meaning a trader who knew how to create a market with enough demand for a large position to be distributed or sold. And sold at favorable prices.
Livermore describes how he would study the stock carefully and do extensive research on the company. Market conditions would also be a big part of the decision. Because it is much easier to move a stock higher in a bull market than a bear market.
He would then decide where he thought he could move the price of the stock based on his analysis of the company and the market conditions. And the range where he might be likely to sell the position in question.
This would be followed by negotiations.
All of the stock held by the insiders involved would be transferred to an account under his control. This way he would prevent large sellers from selling to him as he attempted to move the stock higher.
Then he would tell the insiders how much money would be required to do the market making involved.
These funds would be used by Livermore to buy and sell stock to create a market and demand for the stock he intended to sell on their behalf.
The objective was to use as little of this money as possible but to have it available to get the job done.
Once all of this was complete he would begin his operations.
First he would step in and start buying up the overhang on the offer. These people have been waiting a long time to get rid of their stock. They will be happy to have their dead money liberated.
Next there will probably be some sellers only too happy to finally see a buyer and they will sell.
He will count on the traders noticing the activity and looking for an opportunity to make money. These traders will be a crucial part of generating activity that will eventually be noticed by the press. The press after all is hungry for a story to delight their readers.
When the overhang is cleared up he will run the price up a bit and see what happens.
The run up will attract the traders who will enter the stock and buy and sell. That’s what they do.
The press will take notice of the increased activity and tell a story about why activity in the stock has suddenly increased……even though they have no idea.
These stories in the paper will attract the attention of the public.
As the stock rises then starts to decline again, he would sell what he bought earlier on the way down. Then he will step in as a buyer at a certain price point to provide buying support.
The buying support would increase the confidence of the traders who will join the buying again looking to sell it higher and he would repeat the process……
Buying up. Watching the reaction. Selling on the way down and supporting it at new higher levels.
The press increases their coverage. Weaving rumours and tales about the reason for the move….
These articles along with the increasing activity and trading volumes will attract even more buyers from the public.
This feedback loop creates increased interest and demand as buyers flow into the stock. As a result of the increase in activity from traders and the public, Livermore will do less trading…..unless the stock requires temporary buying support to maintain confidence in the move.
Livermore will take take full advantage of the vast increase in buying demand. The wall of buying from the public provides the bids he needs to safely sell the large position he is entrusted with without crushing the price of the stock.
As the old trading adage goes, you need to sell when you can, not when you have to.
The increase in demand from many different buyers helps to maintain the stocks momentum for a time. Wide distribution of a large stock position to many different small buyers means that no single holder will have too much influence on the market if and when they decide to sell.
Wide distribution helps to keep the price from dropping too quickly. If at all.
Then he exits the market. Gives back any monry not used for the operation and transfers the funds from the stock sales to the the rightful owners. His fee was a series of stock options that he would sell along with his client’s position.
Do you know who the coin operators are?
Now take a look at Bitcoin or any of the other coin offerings out there.
Is it possible that large holders in some of these have manipulated these issues higher using similar techniques from the 1920’s to make a market for their large positions?
Are they using the universal truths of speculation that Livermore described?
- By using their relatively large coin positions to their advantage in a market with a relatively small number of free trading coins?
- Exploiting an unregulated, distributed, opaque market to their advantage?
- By floating stories through the media and various other social media channels and forums to drive demand?
- Then by moving the price higher by buying up the limited supply of coins on the offer in order to create the appearance of activity. And demand?
- …..drawing traders and speculators of all types.
- Which grabs the attention of the media hungry to please an audience….
- Then by selling coins to buyers on the way down followed by supporting the coin at higher price levels each time it drifts, giving the impression of demand and support.
- Resulting in further media speculation. More trading. More activity.
- And as a result an increase in demand from the public.
- All the while using various social and media channels to persuade people to hodl the assets they are busy selling to them.
- Thereby reducing selling competition as they distribute more of their positions at higher prices to the flood of demand from millions of small buyers?
I don’t know the answer. Do you?
Freelance Financial Copywriter