The strategy of buying and selling in contrast to the general sentiment of the market. Simply put, that’s basically the reverse inversion. This is a strategy that particularly appeals to individualists, because it means thinking opposite of the collective. The libertarian current in the crypto space normally defends a rather radical individualism. It is no surprise, then, that being contrary (or “contrarian”) is seductive. Sure the Bitcoin fanatic is a perennial bull. He is “contrary” in the bearish period. But he moves with the trend in the bullish period. They are contrary when things go wrong. But they are not when things are going well.
This “naive” opponent has a highly superficial view of the opposite investment. It is automatically assumed that all pessimism is a reason for optimism and that any decline is a buying opportunity. False. The “naive” opposite contradicts in an illusionary way. The smart contrarian, on the other hand, looks for the best opportunities at the best possible time (despite market assumptions).. The smart opponent looks for turning points. Not simply contradict everything the market does.
A perfect example of a naive contrarian is President Bukele of El Salvador. He bought every dip after the all-time high at the start of a bear period. “Bitcoin is the future. Thank you for selling cheap”, he wrote to us in a tweet celebrating his fall purchase. Well, now they are under water for buying expensive. This mistake is made by thinking that every fall is a buying opportunity. A dip is an opportunity at the end of a bear market and at the beginning of a bull market. If tomorrow’s demand will be higher than today’s demand, buying the dip is not a bad idea. If not, it is better to save that cash for a better time. Why buy “expensive” now when we can buy at a better price later?
It is extremely important to understand very well the difference between productive assets and non-productive assets. For example. A farm is a productive asset. And a Picasso is a non-productive asset. Suppose a hypothetical farm has X underlying assets with an annual production of Y. If X+Y is much less than the market price of the farm, then we could talk about a discount. Why? Well, because the farm is more valuable than its price. Valuable in what sense? The farm produces And those revenues are good enough to justify the investment. If the market underestimates the farm, all the better, because that means the discount will be higher. In this case, the opposite investment turns out to be quite lucrative.
A Picasso is not a productive asset. It is a speculative asset. Then, its price depends entirely on demand. How popular is Picasso’s work among collectors today? How popular will Picasso’s work be with tomorrow’s collectors? If the prices of Picasso’s paintings drop dramatically from one day to the next, we cannot automatically assume that it is a discount. In other words, reverse investment in the case of speculative assets must be suspected very carefully.
Just because the price of an asset has fallen a lot does not (necessarily) mean that the asset in question is “cheap”. What today’s buyer is really looking for is for the price to rise tomorrow. The productive asset guarantees future income due to production. But we cannot say the same in the case of speculative assets. The profits or losses of these investments depend exclusively on the fluctuations of the price over time. There is no production. Only supply and demand. The discount arises when there is a fall before a recovery. A drop followed by other drops is not a discount. It is an inappropriate purchase.
Now, take the opposite of whom? In my opinion and experience, there is nothing more lucrative in the crypto market than going against fans and retailers. Fanatics essentially operate in an idiosyncratic fashion. Which implies that, due to their biases, miscalculations are frequently made. And retailers tend to take bad advice from fans, because fans control the narrative on social media and in the niche press. Of course, it is not a matter of simply going against it and that’s it. Nevertheless, It’s not a bad idea to weigh the assumptions of fans and retailers with a lot of skepticism. You have to start from doubt.
It is not very intelligent, however, to go against the institutionss. I mean big capitals. The whales. We find the fans on Twitter and Youtuber. They are the creators of contentment. The alleged “influencers”. But also here we must include the CEOs of exchanges, companies and other industry entities. They are interested parties. And, for them, it is convenient to promote crypto propaganda to always keep the enthusiasm alive. In this way, they capture more capital from their clients. In this space, there is fanaticism for ideology, fanaticism for popularity, and fanaticism for business.
Where are the institutions? We find large capitals in price action. I mean specifically the volume. Think of the moments after a capitulation. Fans on Twitter automatically yell wolf: “Buy the fall.” But that is not a reliable sign, because the fans are always bullish. Because, for them, any fall is a buying opportunity. And, as many retailers in this space have been “educated” by influencers, these echoes are the rehashes of a parrot. It is best to go straight to the price action. Who is really buying this drop? What does the volume tell us?
During a period of laterality, on the surface, bullish forces and bearish forces look even at first glance. However, that is not always true. If the red candlesticks reveal much higher volume than the volume on the green candlesticks, what could be happening is that the whales are selling (in parts) to the retailers. Therefore, it is not a consolidation. It is actually a distribution. In this battle, fanaticism is the great ally of the whales. Because that means that the whales will be able to sell at a better price. Retailer’s false expectation is the whale’s escape route. In this case, the whale is the true opposite. Because it is the whale that sells to the optimist. As simple as that.
Like it or not markets are designed for the big to eat the little. Here is this article for reflection. They are not words to accept. They are not words to refute. They are words to think about.
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