In 2021, many people became familiar with the cryptocurrency market, and it seemed like everyone was talking about Bitcoin (unless they were mute). Some people had already become intimately acquainted with the volatility and potential of
cryptocurrencies in 2017. However, many people still don't understand how the cryptocurrency market works, why Bitcoin and altcoins sometimes experience dramatic growth and decline, and how to invest or profit from them.
When I first became interested in investing in Bitcoin and profiting from explosive growth in cryptocurrency, I didn't understand anything. I couldn't find any information about how the cryptocurrency market worked. I watched YouTubers, but I didn't find what I was looking for. I only found subjective opinions about the future of Bitcoin and useless demagoguery about replacing the dollar with Bitcoin. As for books, unfortunately, they didn't provide much information about market manipulation, alt-seasons, crypto winter, and asset decentralization. The exception might be books about financial markets.
This was in 2017, and hardly anyone understood what was going on. Those who did understand kept quiet and got rich. Nowadays, among new investors and speculators, few understand how the markets work. Everyone watches YouTubers and follows them, but YouTubers mostly earn money from views and they have different opinions about the markets. As a result, investors often lack their own opinion.
As Bitcoin grows, its capitalization increases, making it more difficult to manipulate. What was possible before, for example in 2017, is unlikely to happen again. If previously there was enough money from whales to manipulate the market as they pleased, now it is much harder to do so.
Bitcoin is becoming financially heavier, and the larger the capitalization, the less volatile it becomes. The curtain on the whales is closed for us, and no one knows for sure how these manipulations will happen now, but the main principle remains the same. To increase Bitcoin's volatility now, whales accumulate it and withdraw it from exchanges to cold wallets, thus making BTC scarce. In the exchange order book, in monetary terms, there are more buy orders than sell orders. And as everyone knows, if a product is scarce, its price increases. It becomes easier and simpler to manipulate the price. Futures trading on exchanges is also used to extract money, and who else but exchanges can be in the team with whales. One should not rely solely on past experience, as different manipulation methods will surely be used in the future.
Everyone has heard the story of how American programmer Laszlo Hanyecz bought two pizzas for 10,000 BTC. Over time, BTC holders became fabulously wealthy as its value increased. There was nothing tricky about it; the market had no money (practically zero market capitalization), and there was no demand to buy Bitcoin for real money. As a result, BTC holders were giving it away left and right. No one knew that BTC would become digital gold except for its brilliant creators. As BTC gained popularity, demand for it increased, and people began buying it with real money, causing its market capitalization to grow.
How it became famous and why it began gaining momentum is a separate story and a topic for discussion. The point is, as market capitalization grew, the BTC price began to rise. As market capitalization increased, volatility decreased, and the opportunities for sudden, fairy-tale-like enrichment diminished. If a scooter can be dropped and picked up with a light hand movement, then a dump truck cannot be moved from its place as easily, just like an asset; the heavier it is financially, the more difficult it is for it to rise and fall. For example, from the beginning of 2011 to the end of 2013, BTC showed a growth of 100,000% over three years. If we take the period from 2019 to 2021, BTC showed a growth of 1,300%, not as fantastic as at the beginning of its journey, but still impressive for an investor. In the future, BTC is unlikely to show growth in thousands of percent in a short period, but globally, everything indicates that it will continue to grow, although its dynamics decrease significantly. The larger the market capitalization, the more challenging it is to move such a massive financial machine.
Therefore, sometimes useless altcoins are in demand — their market capitalization is low, and there are significant opportunities to earn and lose. It is essential to know that when you see the cryptocurrency market capitalization at $1-3 trillion, it does not mean that there are actual $1-3 trillion in the market. In reality, there is significantly less money, but no one knows exactly how much.
This material is not financial advice. Be careful when trading in the cryptocurrency market.