There are few examples of successful cryptocurrencies, especially when being measured against the all-powerful Bitcoin, the king of digital currencies. However, that hasn’t stopped many different cryptocoins from coming into existence for the purpose of short selling and marginal trading. Even Dogecoin, which currently sits at a market cap of around $23m was originally established as a joke. While there is no current shortage of people willing to discredit Ethereum as a flash in the pan or a fad, there also comes with that sentiment of emotional attachment to the original idea of Bitcoin being the ultimate cryptocurrency. This hasn’t stopped Ethereum from growing in use and as a decentralized computing platform, though and it doesn’t appear to be stopping the digital currency from being manipulated by automated bot trading.
When Ethereum reached its $1bn market cap in March it had everyone’s attention as the price rallied over 1000% since the beginning of the year. It was soon after that this milestone that popular Bitcoin exchanges started adding Ethereum to their lists of currencies that they’d service. Some exchanges which had never even dabbled remotely in other cryptocurrencies at all were hopping on board and were seeing trading volumes of the digital currency boom alongside of their Bitcoin offerings.
People who were excited about the prospect of Ethereum growing at a rapid pace were no longer the only people involved with this trading race, but rather savvy investors realized that there was money to be made here. Ether has become another asset to be traded on margin like anything else and when that determination is made, algorithms and bots to execute trades are not far behind. With the same kind of frequency and accuracy that is seen on stocks, bonds, options and commodities trading, Ethereum traders could now set up bots to trade on their behalf while they sleep.
Suppose that bots and trading algorithms are at heavily at work in the Ethereum market, what are their exact effects? While it’s hard to exactly say how much market volatility is subject to these phenomenon, it certainly is an idea worth entertaining for those who might be influenced one way or another due to the wild swings we’ve seen as of late in the price and market cap of Ethereum. When there are traders who are set to automatically dump their shares of Ether as soon as the price rises by a little bit (.10 to .50 cents) it can have a domino effect leading to a sell off. Less often, the same can happen in the opposite direction as well.
When there are huge swings in price and market cap for Ethereum over the course of a week, it’s not really good for anyone except those making profits from the margins of those swings. Detractors of Ethereum use it as an opportunity to bash the technology and those who don’t have the stomach for market volatility might take their funds and invest them elsewhere.
In reality, there’s little to be done about bots and automatic trading. It’s a part of the nature of trading assets like cryptocurrencies like Ethereum, Bitcoin or any other digital currency. Really what a good investor in Ethereum must do is similar to what investors and holders of Bitcoin have done over the years – hold on for the long term if you believe in the core of the technology and maybe skim a little bit of profit off of the top if you see any huge spikes.
What advice do you have for people seeking sanity in the Ethereum market? Will bots continue to wreak havoc on the value or will we see a higher ideal shine through and be reflected on the price?