Traders Lose, Stackers Win

Most traders lose — especially in crypto. It’s a simple statistic that many people seem to ignore or underplay. It can be so tempting when viewing media online, particularly visual media showing the lavish lifestyles of supposedly successful traders. Perhaps these create a perception that financial freedom is easy or can come without risk.

Why do most traders lose? Because they simply are up against very difficult odds, trading against highly skilled and capitalised opponents, and the house (aka the exchange) gets to take a cut too. And let’s not forget taxes. On top of it all, “crypto” is filled with grifts and scams designed to fleece traders and everyday people who don’t know any better.

Of course, buying bitcoin itself is a kind of trade. So to be clear, this discussion about traders is more about ‘day trading’ and those who regularly trade, rather than any trading at all.

There are bona fide professional investors who may well be taking advantage of legitimate arbitrage opportunities, or some in the ‘crypto’ world may be taking advantage of insider knowledge or insider ‘family and friends’ deals. Genuine professional traders should be distinguished from those who are watching on social media and ‘click trading’.

In my December 2021 interview with Cory Klippsten, CEO of Swan Bitcoin, we discussed his familiarity with actual professional traders and the tools they employ to outperform ordinary traders. Cory said:

A damning analysis to be sure. To be clear, it’s not that “no trader can win.” It’s that people should be clear-eyed and honest about their probability of success. You shouldn’t believe that watching some twitter TA (“Technical Analysis”) crayon drawer can make you a good trader. As I’ve said before, TA is horoscopes for men. Some of the TA and hopium posters on social media have massive followings, and these are likely people who are thinking of getting rich quick.

Perhaps it comes down to greed or some level of overconfidence and bias. Just like how if you ask people, most will answer that they are an “above average driver”. However, only half can be above the median average!

Many people feel late to Bitcoin, but the reality is that we are all still relatively early. Everyone feels late to Bitcoin. But don’t kid yourself into thinking that by levering up or trying to trade in and out of the market, that this will somehow create a time machine to becoming a Bitcoin OG who stacked Bitcoin in 2011, 2012 or similar. It won’t. It is the equivalent of playing with fire and can lead to massive and even total losses.

I remember seeing multiple stories on some of the bitcoin forums and r/bitcoin subreddit where individuals were trading and gambled, ‘running it up’ to hundreds or even thousands of bitcoins, only to then lose it all with a few bad trades.

Some studies on day-trading yielded highlights below:

This study on Taiwan stock day traders from 1992 to 2006 showed that “Less than 1% of the day trader population is able to predictably and reliably earn positive abnormal returns net of fees”. This study analysed 450,000 Taiwanese individuals who were day trading. And to abstract away from the luck factor, it was documented that less than 1% of the traders in the study were able to earn reliably positive returns net of trading costs in consecuitve years.

Also, this study on Brazilian equity futures traders from 2013-2015 showed similar findings:

Given the number of people selling courses on trading, or on ‘which coins to buy’, we can clearly see parallels in other markets historically.

Or see this one on Korean traders on the KOSPI 200 futures market:

So as above, amateur ‘click traders’ tend to get rinsed and lose money, while perhaps the top 1%, the professionals, money managers and institutional investors profit.

Most of us want to stack more sats, and there is a way to stack with humility. Instead of day trading, one can start with an initial lump sum purchase of Bitcoin, and then continue to regularly accumulate with an Auto-DCA. Importantly, holding Bitcoin in one’s own wallet where they alone hold the private keys greatly increases security. Now let’s compare this humble approach of stacking sats, avoiding day-trading, and HODLing Bitcoin on private keys you alone control with that of day-trading.

You can run the numbers yourself with a calculator such as this one at stacksats.info. But here are some numbers based on the last 5 years. As an example, imagine if you started 5 years ago on 2017-07-31 with an initial lump sum of $5,000, and you did a weekly DCA of $100 up until 2022-07-31. You would have put in $31,100 and as of 31st July 2022, you would have ~4.44602 BTC. In fiat terms, this is $105,591, for an overall return of 240%.

Another phenomenon I’ve noticed is that people believe that they need to be “doing something with their coins” to earn or increase their purchasing power. When actually the harder thing to do is have the right broad thesis, take a position with an automated bitcoin savings plan, and stay the course.

Perhaps it is more productive to reframe things and really think of having your Auto- DCA as “doing something”. By regularly saving with Bitcoin, you are helping the ecosystem grow and not being a bagholder for the fiat system.

Instead of trying to become a trader, for most people it is more productive to figure out ways of improving your skills in the marketplace, or selling a product or service. By earning more, you are then able to save more.

Those who want to contribute to Bitcoin in some way are able to do a range of things:

Please share this article with a friend who is new to Bitcoin so that they too can learn that most traders lose, but long term stackers can win.