About the G20 Summit in Terms of Cryptocurrency
The crypto market rallied after days of correction as news spread that sentiment on cryptocurrency from the G20 summit was positive.
In short, global economic leaders from across the world are meeting to discuss aspects of world finance (cryptocurrency now included) and seem to be setting a tone for those meetings that can be summed up as “cryptocurrency does not pose a risk to financial stability” (which is much better news than “cryptocurrency is a giant threat, let’s ban it”).
One way to verify to better understand the sentiment going into the summit is to read Financial Stability Board chairman Mark Carney’s letter on cryptocurrency entitled “To G20 Finance Ministers and Central Bank Governors” (written March 13th, circulated to the public March 18th around the time of the rally) which states, “The FSB’s initial assessment is that crypto-assets do not pose risks to global financial stability at this time. This is in part because they are small relative to the financial system.”
The news then is that the sentiment of the summit thus far seems to be positive when it comes to cryptocurrency. And, this matters because we are talking about the heads of the worlds banks (the global banking system of leading nations) discussing the future of cryptocurrency across the globe. You can read more about that full story and check out the letter at Coindesk.com or see Forbe’s Cryptocurrency Doesn’t Pose A Risk To The Financial System … Yet, G20 Told.
TIP: The G20 Summit only just started today, March 19th. This means there is potential for more news. The market arguably rallied a little early, but in doing so it has set the stage for another potential rally over further positive news pertaining to the summit. If you are holding crypto now, make sure to pay attention to how things unfold over the next two days! Clearly, things can go one of two ways, one up, the other day, one must always be prepared for both.G20 Says Cryptocurrency Not A Threat To Global Financial Stability.
The FSB’s initial assessment is that crypto-assets do not pose risks to global financial stability at this time. This is in part because they are small relative to the financial system….
…The market continues to evolve rapidly, however, and this initial assessment could change if crypto-assets were to become significantly more widely used or interconnected with the core of the regulated financial system…
…Crypto-assets raise a host of issues around consumer and investor protection, as well as their use to shield illicit activity and for money laundering and terrorist financing. At the same time, the technologies underlying them have the potential to improve the efficiency and inclusiveness of both the financial system and the economy.
– This excerpt sums up not only the sentiment of the statement from the FSB chairman, it also sums up the general consensus of many banks and politicians on crypto these days. The SEC hearing had a similar tone.
Understanding How Big News Can Have a Big Effect on Prices
Before the summit news, crypto had been in a correction. One reason for the correction was the tension leading up to the summit (one reason, not the only reason, life is more complex than that). The G20 thing wasn’t the only thing that happened, instead it helped to give weight to the bounce at $7.2k (a support level based on Bitcoin’s price action over the past months).
Some might read the G20 worries as an excuse to bid down the price, and the good news as an excuse to rally, but I’d argue it was more than that (it was that, we always want reasons for corrections and runs, but part of it is just market psychology and mechanics). The reality is the G20 thing is important and its focus on crypto is notable, the website even had a front-page article about cryptocurrency being on the agenda! See: The First G20 Meeting of Finance Ministers and Central Bank Governors begins. In short, this is a real event, and setting a positive tone for the event had a significant impact on the market (it is likely further news from the event will have an impact too).
This rally teaches us an important lesson about cryptocurrency markets. News that is perceived as exceptionally good or bad can have a quick and drastic effect on prices. This effect can have a lasting impact (at least in the short term).
One minute crypto was dropping down to monthly lows, the next minute we saw $1,000 gains in less than an hour after some good “news” breaks.
That is what happened this time. In fact, less than 24 hours after the news spread, some cryptocurrencies were up as much as 40% from their lows!
This series of events, from the correction to the massive and quick recovery based on some very good news, is very typical of cryptocurrency.
Since wide fluctuations are typical, it is important to keep in mind that while good news might set off a days, weeks, or even months long rally, crypto markets are volatile.
Volatility can mean big gains or big losses, and thus it is always best to approach cryptocurrency investing and trading with a calm, conservative, and well thought out strategy that allows you room to enjoy great days for crypto as a technology and crypto in terms of price, without falling into that trap where you go all in on whim and then feel overly emotionally connected to the market.