The sell-off in crypto today is a good case study in crypto markets. I’ll quickly review what happened and why. Hopefully this will help you to understand the nature of the crypto beast.
Here are the key points:
- Bitcoin initially went up back in June – July because people were stoked that a Bitcoin ETF by SolidX and VanEck might be approved by the SEC (The Rumor phase).
- Bitcoin started showing weakness technically around $8.5k after going up all the way from $5.75k, this happened right at that time another ETF by the Winklevoss twins EFT was denied by the SEC, this then led to a decline in price (the News phase part 1).
- Bitcoin continued on from that rejection to form a head and shoulders pattern (essentially it went down) while a decision on the SolidX ETF was waited for. Here we can learn that technicals matter greatly in crypto due to a lack of fundamentals. The news or an update might matter, but ultimately technical patterns are very powerful.
- On August 3rd (I’m pretty sure that date is right) Bakkt was announced. Bakkt is un upcoming exchange by the Intercontinental Exchange ICE (the parent company of the New York Stock Exchange NYSE). This is pretty much the biggest crypto news of 2018, if not ever. Among other things, Bakkt essentially preforms all the functions of an ETF allowing retail investors access to Bitcoin via their brokers. The market did not react to this… it is not super clear why, but one can say, “in a bear market good news tends to not matter, and in a bull market bad news tends to not matter” and “people were fixated on the ETF in general and sort of ignored the much better news that occurred while they were fixated on that.”
- On August 7th the SEC announced they would postponed the decision on the SolidX ETF and Bitcoin dropped taking the crypto market with it (the News phase part 2).
So what did we learn? We learned that in crypto people buy the rumor and sell the news, that bad news doesn’t matter in a bull market and good news in a bear (but bad news matter greatly in a bear and good news greatly in a bull), that the market is somewhat subject to whims, that technicals matter greatly (especially if they give the market an excuse to reverse or continue a trend), that alts tend to follow Bitcoin when it corrects (especially in a bear market), and that in general news only has a major impact once it is spread and comprehended by enough traders / investors.
The reality is “Bitcoin ETF” is simple to grasp, but Bakkt is a little complex. There is potential traders and investors haven’t fully grasped its implications or understood why logically the ETF doesn’t mean much given the Bakkt announcement (and given the many ETFs which have been rejected or postponed so far… at this point investment firms are throwing spaghetti at the wall a bit, so getting too caught up in any ETF is a bit of a set up for a let down).
What exactly one does with that information is up to them. Do you bet that the market will continue to panic, or do you bet on sentiment changing as more people realize the implications of Bakkt? Hard to say. Good luck making that choice 🙂