Though the market capitalisation of all cryptocurrencies is approaching $2trillion, the industry is still very immature. Much of that $2trillion is perceived future value rather than projects or businesses generating revenue today. Perceptions shift on news so the crypto market is heavily influenced by information as it emerges and is interpreted.
The crudest example is the upward move in Bitcoin’s price on February 20th, 2020, as it reacted to news that Tesla had added $1.5bn of BTC to their balance sheet.
As explained in our blog post on the ten most dramatic moments in crypto, BTC rose $9k in 24hours, with the majority of that increase within the first hour of news breaking.
There is no simple way to be on the right side of this kind of news. As the saying goes ‘those who know are telling and those who tell don’t know.’ Crypto is a speculative asset, and speculation literally means that there is a mix of conflicting ideas and expectations around future adoption.
That speculation increases during a bull market but as some feel Bitcoin is in an even higher state of price acceleration – what has been termed a super cycle – the level of noise and rumour is increasing by the day. In this situation a sensible trading strategy is to buy the rumour and the sell the news.
This literally means to ride the wave of early speculation, which has the biggest impact on price. That way you are protected from the possibility that it is just a rumour, as well as the impact of profit taking which happens soon after any rumour is confirmed in the news.
You can put yourself in the best position to receive news as it breaks by developing a reliable source of information; following people on social media with reliable track records of breaking early news.
$9,000
How much Bitcoin's price increased within 24hrs of
Tesla's announcement of a $1.5bn BTC investmentThe ‘Tesla Candle’ – as it has now become known – is really an outlier. The impact of news is generally far more modest, but still presents significant opportunity. Sophisticated traders will be scraping and filtering massive amounts of data from Twitter or Reddit and running trading algorithms against that information.
Another good example of the value of news, but which doesn’t require you to be ahead of the curve is the so-called ‘Coinbase Effect‘. Cryptocurrencies listed on Coinbase saw an average 91% increase in value in the first five days of their listing according to research by Messari.
The huge influence and customer base that Coinbase has means their decision to list a coin almost guarantees a huge surge in interest and liquidity. The same is true, but to a lesser extent when coins are listed on other exchanges, so it is your job to monitor that.
By curating valuable news sources you can put yourself in the best position to take advantage. This might just mean having Google Alerts set up, but the most effective approach to news/information based trading for someone just getting started is to specialise in a few niche cryptocurrencies.
Cryptocurrencies listed on Coinbase saw an average
91% increase in value in the first five days of their
listingGet to know the people behind the project, find their social accounts and pay close attention to what they post. You may just pick up some nuggets of information with enough lead time to trade that news, but make sure you know how and where to trade the coin, and that there is enough liquidity.
Pros
- Finding news doesn’t require technical knowledge
- No specific barriers to entry
- Isn’t necessarily time intensive
- Allows specialisation
Cons
- Distinguishing genuine news from rumour is difficult
- Markets react instantly so timing is very difficult
- It still requires a technical assessment of how much a piece of news will move a market
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