What is Social Trading and Why is it so Important in Crypto?

If you’ve ventured into the crypto market, I bet you can easily recall your initial confusion on which coins or tokens to invest in. The game has become much more complex now with CoinMarketCap, one of the most comprehensive coin and token databases, continuously expanding its list over the past decade to a current tally of almost almost 6,900 coins. Chances are, by the time you are reading this, that would be an outdated statistic since more coins are added constantly.

So how does a relative newcomer or a novice in crypto trading decide which asset to invest in? Let’s go a couple of decades back and visit a 2000 jam experiment conducted by psychologists Mark Lepper and Sheen Iyengar. The study revealed that when people were presented with a large choice of different jams, they would consider the choices but fewer people would end up inclined to buy. Results showed that purchase decisions fell by 90% when people had 24 options in comparison to a smaller size of 6. With 300 times more coins today than the two dozen jams in that study, perhaps it’s understandable that newcomers, faced with confusion in making a buying decision, might end up reluctant to purchase any tokens at all.

So how do people decide? We, humans, are social creatures, seeking out help and support from others. Through socializing, we help build our confidence in and strengthen our opinions of tokens. This knowledge derived from our social interactions thus accumulate towards a buying decision, even when it comes to crypto trading.


Social Trading and Investing

Digital socializing, though not comparable to an in-person meeting, has become a significant part of our lives. Over the decades, with faster communication and borderless lives — not to mention the enforced communication alternatives living through COVID-19 —  online socializing has become a norm. Influential lot that we are, we have turned towards prominent and popular people to see what they do. Believing that they mirror our principles and values (or that we desire to mirror theirs), we simply copy what they do. Their lifestyle choices are ours, their choices are ours, their purchasing decisions are ours.

This essentially has penetrated our crypto lives as well in the form of social trading. We seek out the most profitable opportunities and with thousands of coins, finding out people who can help us. This reduces the sample size and even directs us through a maze of options, resulting in far less stressful experience than diving into the deep end on our own.

This, in a nutshell, is what social trading is.

People that influence social trading can come in a variety of forms, but I have been able to broadly classify them into three categories:


1. Market Experts

Let’s face it, not all of us are finance or investment experts. Trading indicators such as MACD and Stock to Flow models can be beyond the comprehension of most (mine certainly!). Social platforms like Twitter are full of trading experts who share their analyses and advise people on what and when to invest or pull out. Ivan Lijeqvist is one such person and he has gained more than 304,700 followers. Among other things, he puts out a Tweet every now and then on the state of crypto markets or which token he believes is climbing the proverbial ladder.

What’s more, this has also led to a phenomenon called copy trading, where people duplicate the trading decisions of big traders whose activities show that their decisions can often result in larger returns. There are even trading platforms that offer this service.


2. Industry Specialist

Cryptocurrencies are much more than just financial instruments. A complex mathematical setup supports its existence. Couple that with the individual ecosystem that a coin or token is designed for and the smallest of these can become the next unicorn. How would an average person dig up this information? By keeping an eye on what the industry leaders and experts are saying.

Consider Vitalik Buterin, the creator of Ethereum. We all know Ethereum is working towards its next iteration, ETH2.0, making it faster, cheaper and more efficient. It is expected that the move will be favorable for ETH price, but how would we know the exact time to invest or buy ETH? How about following people who are deep in it, like Vitalik himself? I know I am waiting for him to announce the ETH2.0 launch date.


3. Celebrity

Celebrities, with regards to social trading, are a very different lot than the above two. They mostly don’t have any insight into neither the technical nor the financial side. But what they do carry is the power of influence. Don’t get me wrong here though, as I’m not necessarily advocating for them. Elon Musk, for example, is a good businessman. He has made some pretty good choices over the years. However, his ability to understand cryptocurrencies is a different matter. His preference for Dogecoin is based on personal choices and experience, not number crunching like industry or financial experts.

That being said, he has been able to sway crypto markets and that is exactly why people like to follow him and other celebrities to ensure they’re able to ride the next big wave.


The Future of Social Trading

With more coins being launched daily and the investment or trading arena expanding, finding the next golden egg continues to be tricky. People will always turn towards others whose words can move markets and sway opinions. Thanks to the power of social media, this has been made easier through social trading. Ask professional traders and they will tell you that they do include at least some consideration of these influences and opinions as a part of their fundamental trading indicators. Such is the power of social trading.

Disclaimer: This blog post does not contain investment advice and should be seen as a thought-provoking piece for entertainment purposes only. This is an outlet for team members to share their opinions and interests. Individual contributors of this blog do not represent the official opinions of Bitcoin PR Buzz. 

Alex T

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