Since bitcoin first seeped into the public consciousness in 2013, the stereotypical image of the cryptocurrency trader is the 25-year-old tech bro who uses phrases like “YOLO” and “FOMO” when describing his trading strategy and general investing philosophy.
In more recent years, the image of the mom-and-pop crypto trader has taken hold, as Mrs. Watanabe – the archetypal Japanese and South Korean house wife once known for trading foreign exchange – has migrated to trading bitcoin and ethereum.
But as the Financial Times pointed out in a story about financial professionals dabbling in crypto markets, the hoodie-wearing twenty something described above isn’t entirely representative of the crypto community. In fact, many former Wall Street professionals – some with backgrounds working at hedge funds or quantitative trading shops – have embraced cryptocurrency trading.
And while the allure of obscene returns is obviously one reason for the attraction, one venture capitalist interviewed by the FT offered an even more revealing answer:
He embraced crypto after becoming disillusioned with traditional markets, which “no longer make sense” thanks to nearly a decade of central bank intervention.
“I’ve been out of the stock market because it stopped making sense to me,” he says. Central bank support for the markets plus the trend of passive investing have turned it into a game with unclear rules.
“Over the past few years or so, everyone has just been buying indexes and they haven’t been doing price discovery. They’re just investing in a trend of something going up and up and up,” he says.
Until very recently, volatility in global stock markets had fallen to one of the lowest levels in history – making life difficult for quantitative traders who leverage up and play for small moves.
But in the crypto market, circumstances couldn’t be more different. Such high volatility is essentially a quantitative traders’ dream.
“In a days worth of cryptocurrency movement you have a week or a month of equity market movement or a decade of country debt,” he said.
Another apt description came from a hedge fund trader who said financial professionals are drawn to bitcoin for the same reasons they’re drawn to the poker table.
“It’s fun,” one hedge fund trader said, adding that she did not want “fomo,” the acronym for ‘fear of missing out’. One London-based banker was more blunt: it was gambling for people who could afford to lose a bit of money. “That’s it. Nothing else.”
We’re not sure the surprising number of people who bought bitcoin on their credit cards last year would agree.