Adrian Reid says crypto markets move like stocks but 7 times faster and 5 times bigger. Smaller tokens behave like penny stocks with shaky fundamentals, driven by emotion and rumors. Systematic traders can exploit these patterns for higher returns than traditional stocks allow.
Questions this video answers
About 7 ("compress that by a factor of about seven").
About 5 ("stretch it to make the cycles bigger... By about five times").
Chapters
Volatility is a big one. And I sort of explain it like this. If you took the S&P 500 index and we've got decades of history, right? But you compress that by a factor of about seven because the cycles are much quicker in crypto, we go through bulls and bears and bulls and bears like they're going out of fashion. So you take the S and P and you compress it by a factor of seven so that the, the cycles happen more quickly. And then you take it and you stretch it to make the cycles bigger.
By about five times. Then you've probably got crypto. So the market is kind of the same, but on speed, and that's the first thing. So the cycles are much bigger, much faster.
That translates to the volatility of the individual tokens.
Crypto now, and particularly the smaller caps are kind of like penny stocks. There's often not a lot of real fundamentals behind them. Not necessarily. Maybe there's a bit of the makings of a business, but they're not really well established. They're certainly not the apples and the Facebooks of the world. And what that means is there's a huge amount of uncertainty about the future value of them. And a lot of that price is driven by the perception of what the value might be. And so, you know, someone might hype up and have a really great story and the price might rock it up, but then it becomes clear that there's actually nothing there and it collapses. So it's really like the Wild west of stocks. So compress the cycles, expand the amplitude, and add the uncertainty of. We don't know which ones of these are going to succeed. So there's a lot of emotion, story news and rumor driving it. Now that what's interesting is that doesn't mean you can't make money. In fact, for the systematic trader, that's amazing news, because for an emotionally driven market, a systematic approach absolutely kills it. Because what you're doing is you're standing aside from the emotion. You're identifying the price patterns that the emotion is creating and you're profiting from those.
So.
When I take a set of rules and apply it to stocks, I might Hope to get 20, 30% return per year. But if I take the same set of rules and tune it just a little bit for crypto, I could get hundreds of percent return per year because of these differences.
One thing which is the same is there's a lot of correlation within the market between tokens. There's a lot of correlation between stocks as well. So you don't want to fool yourself that I'm hugely diversified because I've got five different tokens. Chances are, if there's a bear market, they're all going down.
If there's a bull market, they're all going up. So you need to trade realizing that you've got a lot of correlation. And what that means is instead of having one set of rules and 20 trades in that set of rules, that's good, but it's better to have several different sets of rules that are diversified from each other. So it's the rules that give you the diversification as much as the portfolio of holdings.
