The Prince’s Robes & Beggars’ Rags
Are Toadstools on the Miser’s Bags.
A truth that’s told with bad intent
Beats all the Lies you can invent.
It is right it should be so;
Man was made for Joy & Woe;
And when this we rightly know
Thro’ the World we safely go.
Augeries of Innocence – William Blake
Traders are a fickle bunch. Emotions run high, ironclad will turns to indecisiveness, and greed turns to fear. Indeed, market volatility reflects in the thoughts and actions of even the most wizened investor. Be it an article, a Tweet, or a 30 second TV clip between discussions of “today’s top stock picks” and an advertisement for men’s razors, cryptocurrency investors seem to cling to any scrap of information that they can get their hands on. Fear of the unknown combined with herd mentality leads to even the most insignificant facts (or lack thereof) to be blown completely out of proportion, and can prompt the entire market to either climb to new heights or fall like a stone. But why does it happen? Who is behind it? How should I react to news and price fluctuations?
These are questions every trader grapples with daily. After all, a market, at its core, is a group of people, people who want two things: money and information. Like starving hounds scratching at the door, investors lie in wait to snap up any small morsel that is dropped. Every trade has a winner and a loser, and traders will do anything they can to get the edge over one another. This manifests itself in seeking information that most do not yet have, or interpreting it in a way that others do not yet understand.
A byproduct of this is that even the most mundane information can often be misconstrued or intentionally blown out of proportion as an indicator that the market will swing in a particular direction. Even with a wealth of facts, figures, charts and patterns, one thing drives market movement above all else: emotion. Those with a platform to do so can take advantage of this fact, attributing anything the market does to some story of hackers, fraud, partnerships, government intervention, or impending regulatory scrutiny.
This is not to say that every writer or talking head has an ulterior motive for reporting information, but the patterns and timing of reports have been enough to raise eyebrows in the past. Reading news about any market is like drinking from a firehose, but cryptocurrency in particular has attracted those who would put out any and all information they can, provided it fits their agenda.
Take for example the hot and cold “crypto ban” rumor that periodically surfaces. There are typically three phases spaced out over an indeterminate timespan when this sort of information comes out:
- A bold statement: “Trading is to be banned in one of the largest cryptocurrency sectors”
- Retracting or doubting the statement: “Officials have stated a ban is possible but not currently in place.”
- The contradiction: “No trading ban is planned, and a dedicated team has been established to research blockchain technology”
This emotional story arc plays out time and time again in different forms, and one could conclude that either it was never true to begin with, or the originator of the story did not fully understand it. Nonetheless, just as the S&P 500 can turn on a dime based solely on a Donald Trump Tweet, bitcoin and the crypto market as a whole can break a trend to react to some piece of news deemed significant by the crowd. More often than not, however, “groundbreaking” news is forgotten within a few days, or is
debunked entirely and life goes on.
Until relatively recently, most media outlets thought of bitcoin as an oddity, a quirky invention that computer savvy basement dwellers tinkered with, or a criminal currency which changed hands only in the shadows. As the price skyrocketed and more players came into the picture, cryptocurrency seemingly earned a seat at the media table among its financial forefathers. Price speculation, adoption theories, technological development, and opinion pieces have begun to litter the journalistic landscape.
Articles praising or slandering companies for the sake of impacting investor outlook have existed for as long as the securities themselves; however, stocks are shares of companies, companies comprised of people who can confirm facts or disprove falsehoods. Of course, it can sometimes be hard to come back from a black swan event, but companies can employ individuals specifically to deal with damage control. However, in the “wild west” cryptocurrency market, the rumor mill is not bound quite as much by slander and defamation restrictions, and therefore theories and statements can prove difficult or even impossible to contradict.
It’s become a bit of cliché to say that media outlets cannot be trusted, but by the same token, a jaded, dismissive attitude toward news can be equally harmful. Audiences are so inundated with information that they typically just want the “quick and dirty” version when a story comes out. The typical consumer doesn’t want to read through two hundred pages of lawyer-speak to come to a conclusion about the implications. Rather, a condensed and easily digestible summary is much more palatable to readers who want to be spoon-fed the information and make a decision immediately. This is not a jab at investors; the average person doesn’t have unlimited time to devote to research.
Furthermore, the intricate workings of regulatory agencies and complex processes necessary to advance cryptocurrency legally and technologically are an entire field of study that the average person likely does not fully understand. This tends to exacerbate the effect of trusted information sources drawing conclusions on behalf of the investor. Generally speaking, one tends to trust those presenting information, as they are likely to understand it better than the layman. That being said, it is the responsibility of the investor to learn enough to challenge opinions and information presented to them, and most importantly – not to make snap decisions without having some level of understanding on the subject.
So what is the goal of releasing false or misleading information? Unverifiable theories are often thrown around, particularly regarding rich and powerful groups attempting to control price for profit. After all, if you intended to buy something and had the power to drop the price first, it would certainly be tempting to do so. Indeed, there is likely price manipulation in the crypto market; yet traders tend to become overzealous with their cries of “fraud” when a market movement doesn’t quite go their way.
One must learn to accept that markets are simply millions of people sitting in front of computers, and people are unpredictable. Technical and Fundamental analysis can give you an edge; the former, a direct result of human psychology, the latter, a measuring stick for how likely the underlying company or technology is to succeed. After all, coins don’t make chart patterns, people do.
Technical analysis works because people believe that it works. A universal agreement that past behavior will yield a predictable future price behavior typically causes the prediction to come true. It all boils down to emotion. Traders want to trade with the flow, not against it, and there is no sure way to know what direction that is at any given time – but you can increase your chances of guessing correctly.
The precipice of a pattern completion or critical event creates a moment of high influence. For example, if a bullish chart pattern is drawing to a close and damaging information comes out about the coin or cryptocurrencies in general, the emotional effect can be amplified. If everyone is expecting the price to go up at a certain time and it begins to decline instead, elevated emotion can cause rash decisions to be made, and thus bad trades are born. Using volume profiles or other indicators, it is easy to pinpoint
where most people have loaded their stop losses, and market makers take advantage of that.
Sell orders are periodically “swept” by sudden downturns, quickly triggering throngs of stop losses and liquidating leveraged positions. This is often reversed shortly thereafter, returning the price to more or less where it started. This is a common accumulation method for bots and professional traders, which can be executed more effectively if used concurrently with fearmongering news releases. Uneasy traders are easily separated from their coins, and often give them away for a loss just in time for the
next upward movement.
“Sticking your head in the sand does not prevent the tide from coming in.”
― K.J., Impaired Ocular Acuity and Other Demented Synapses
Much like overreacting to news, simply ignoring current events is a path to ruin as well, depending on your trading timeframe. Swing and day traders must be at the forefront of all information which may affect price. However, awareness of an event does not give one insight into the price movement vector it will provoke. In fact, betting on a binary event to move the price in a particular direction is extremely risky, as those with the sacred knowledge may have been privy to this long ago and accumulated ahead of time, ready to dump for profit once the masses catch wind of it and begin to buy, aka “selling the news”.
Long term traders can afford to be numb to the daily influx of information. After all, if you intend to hold Bitcoin for 10 years, you don’t particularly care if the price declines in the short term. The vast majority of winning trades are made well in advance, and seasoned traders are poised to begin scaling out of a position once the target price movement begins, rather than scaling in. Profits can be made scalping short term price movements, but risk scales in accordance.
Information is a resource worth its weight in bitcoin, but one must take care not to see the forest for the trees. As an investor, it is crucial to be knowledgeable about the asset you are buying, but making decisions based entirely on every article or social media post you encounter is akin to judging a trendline by each discrete datum.
Much like technical analysis uses pivot points and support/resistance lines, media should be used to judge the direction a coin is headed, rather than a singular point. Overall, one’s bias should be formulated based on knowledge and research, and only then can you travel the road to financial independence without disruption.
Remember. Believe none of what you hear and half of what you see.