Wow, that Bitcoin news makes trading tough sometimes.
You’re enjoying a strong market, and then something comes out of nowhere.
Then things seem to get chaotic and volatile.
Despite being referred to repeatedly as digital gold, Bitcoin is still speculative.
One day you’re hearing wild price predictions for BTC to CAD.
The next, it seems like it’s one bad news story after another.
Then comes another leverage bomb… And then Elon Musk chimes in.
News, blog posts and forums can have a powerful influence on market behaviour.
As a Bitcoin trader or a trader in any crypto asset, you can’t ignore this risk.
One of the challenges with news is the assumption that it’s designed to inform and educate.
News is better understood as a marketplace of narratives.
And the job of the trader is to be able to figure out what narratives matter and those that don’t.
By thinking differently about the “news,” you can use it to your advantage trading.
Bitcoin news is like all other financial news
Every news item contains a piece of narrative, a bit of truth, maybe a fact and definitely a purpose.
No matter the source, news is not strictly about informing you about what is happening.
Every source of news has a business model and a purpose.
Every news source serves a different master, and it isn’t you.
When you are reading about Bitcoin news, you are seeing that narrative market evolving and changing. These stories are like market participants influencing prices through their actions.
You can’t ignore the news because it can and does have an impact on your trading.
It affects your Bitcoin, Ether and other crypto trading positions.
It affects your emotional reaction and subsequent trading decisions.
And these pieces of information can affect the way you interpret and see what the price of the Bitcoin market is telling you.
Your interpretation is a combination of anchor events and the narratives that news builds around them.
December 2017 was Bitcoin’s anchor
Everything significant that happens in a market is an anchor. The more dramatic it is, the more it creates an emotional imprint on the participants.
The people that went through the blow-off top in BTC and ETH in 2017 were burdened by that memory.
Those that held through the decline in 2018 likely experienced some significant pain.
These events shaped the interpretation of everything that followed.
All through this period, articles, blog posts and forum comments were a mixed bag. Stories justified not selling, and why the market was wrong. Others talked of the future that might one day come. Various narratives were floated as justifications for hodling all the way down.
The events gave Bitcoin opponents and detractors fuel. They used the period to gloat and attack Bitcoin and crypto mercilessly with their own narrative of events.
Reading the news during this period told you little or nothing.
It didn’t help you make trading decisions.
It didn’t help you manage your risk.
It didn’t preserve your focus and trading capability for better times.
So the first thing to understand about news is that it should not be used to do your thinking. News, forums and blog posts can augment your thinking.
You must always think for yourself regardless of what you read.
Should you sell your Bitcoin for that reason?
Back in November, I got a ping from a friend.
“Have you seen Bitcoin?”
“Yes,” I said. “It’s up.”
“It’s crazy,” he said.
“But you’re long, so that’s good,” I replied.
“I sold.” He said.
“All of it?”
I was surprised to hear that.
So I asked him what his thinking was.
He told me some guys on a forum were saying that it was going to get cut in half like last time.
So he sold it.
This was back when Bitcoin broke out from $18,000 to $22,000 on its way to all-time highs.
He had been reading insight that he thought was reliable. He was bullish on crypto but relied too heavily on someone else’s interpretation of events and news.
The forum he was reading was anchored in the pain of previous events. As a result, they were incapable of seeing the evolving narrative supplied by the news.
The evolving Bitcoin narrative from March 2020
Now, if we go back to March 2020, you might remember that the Bitcoin market had its first leverage mishap. Leverage was a relatively new addition to the Bitcoin market.
When combined with adverse market activity, it resulted in a dramatic liquidation, followed by an equally dramatic recovery.
The government stepped in with stimulus for the economy. There were stories about Stimmy checks piling into new trading accounts in crypto and the regular market.
And the attention in Bitcoin became fixated on the halving.
Numerous articles came out around that time making predictions about the halving. These predictions assumed that you could use the previous halvings as an indication of how things would go, all two of them.
Now, at the time, the infrastructure of the market had continued to be built out.
From the old peak in 2017, there were lots of important changes in crypto.
Regulation had moderated somewhat and become a bit more clear.
Custody options were expanding.
And large, credible financial institutions were heavily involved.
Futures markets provided a way for large institutions to experiment.
A functioning options market in Bitcoin was developed.
Various fund options provided a place for institutions to get some indirect exposure.
Insurance and banking started to become more widely available.
And the impression of crypto relative to a chaotic worldwide financial and health upheaval didn’t look too bad.
So there was a build-up to the halving. But it was what happened after the halving that was significant.
Then along came the catalyst that mattered
One narrative out there was what would happen if every big fund allocated a small portion of their assets to Bitcoin. This is where those crazy price targets came from.
What if they moved from gold to Bitcoin?
And so on.
Post halving, Bitcoin started to trade sideways.
Volatility seemed to dry up.
And we found out why a little later.
Michael Saylor’s announcement that he had converted a significant portion of MicroStrategy’s treasury to Bitcoin was the reason.
This big position in the fall was followed by several other smaller announcements. It gave the impression that things had changed.
Along with all the important infrastructure developments, this was the all-clear signal for other institutions.
Then came numerous press releases from various institutions. They were telling everyone that would listen about their Bitcoin positions or intent to start one.
Stodgy old risk-averse insurance companies announced they had millions in Bitcoin.
Of all the news that was out there, Saylor’s action was amongst the most important.
The Saylor tailwind
As Bitcoin approached new highs at the end of 2020, the baggage of the old blow-off top of 2017 was looming.
New participants flooded into the market unburdened by 2017. The move started with Bitcoin, then ETH lifted followed by the altcoins.
The narrative had changed as the Saylor tailwind turned out to be the catalyst for the breakout.
The string of announcements helped to lift Bitcoin aggressively higher.
Then came the very public discussion between Saylor and Elon about Bitcoin.
That was followed by a period of quiet before Elon announces that Tesla was in, and so was he.
That juiced the market further.
Elon, you will remember, is perhaps the single best earned marketing genius on the planet. There is no opportunity to get attention he won’t explore and take advantage of.
And he does this with a regular cadence.
Whenever things get quiet, you know Elon is out there coming up with something else.
A flamethrower. Throwing a rock at his Cybertruck. A public spat with someone. Promoting Dogecoin.
He gets a ton of press as a result, and he never pays a dime for it. He is a narrative shaper.
Elon added to the Bitcoin narrative. That resulted in a series of incredible price predictions and a very bullish series of price targets.
Is the prevailing Bitcoin narrative vulnerable?
Now, if you were to look back through all the news, you will see all sorts of predictions and future visions of crypto.
Some of these will likely be realized in the future. But most of this news and analysis is simply noise and filler.
The most important news items were Musk and Saylor and the constant flow of institutional announcements.
So figuring out the most important news is a key thing for a trader in Bitcoin, crypto or any other asset.
The next thing you have to consider is how that narrative might change.
Where are the vulnerabilities in the story?
And how might your position be impacted by a change in the headlines?
For example, the addition of Bitcoin to corporate treasuries adds a new dimension to the Bitcoin story. Publicly traded companies have heavy regulation and are laser-focused on risk mitigation.
So when companies have Bitcoin on their balance sheet, you have to be aware of things that might affect their decision-making.
Right now, corporations are being impacted by trends in ESG investing. ESG stands for Environmental, Sustainable and Governance. Companies are embracing ESG policies for various reasons, including attracting a pile of ESG focused investment money.
Attracting investors increases stock prices which increases the value of options.
And it was this element that Bitcoin seemed to run face-first into by May of 2021.
The Elon narrative goes ESG, and the story changes
Elon announced his concerns about the environmental impact of Bitcoin. Then he and Saylor sat down with North American Bitcoin Miners to get a commitment for greener approaches to energy usage.
In our Ben Gagnon interview, Ben had described how Bitcoin mining, particularly in North America, provided a vital energy grid management function. So efficient clean Bitcoin mining is already well underway in North America.
Simultaneously came the news of a crackdown on Bitcoin and crypto in China. This seems to be a negative for the market given Bitcoin’s geographic mining and usage concentration in the area.
Although the alternative view might be that a reduction in China’s relative dominance in Bitcoin might be a good thing.
When Bitcoin started to fall on this unexpected news of Elon and China, it set off a cascade of leverage liquidations.
The amount of leverage in the market is a reflection of confidence in the prevailing market narrative. The amount of leverage in Bitcoin was high, and the selling was violent.
Then, if you look at the news, what do you see?
Stories about “whales” loading up on the decline and institutions piling in.
The implication of this could be that the market has a bid, and declines from here may be limited.
Saylor made another token buy of $10 million Bitcoin to signal to the market his ongoing confidence. This buy was designed to show the market that the biggest public player in the game remains committed. He’s done this on almost every significant decline since his big announcement.
And the result of all this news is that things have settled down a bit.
The news everyone knows isn’t worth knowing
What can we learn about using the news to help us trade Bitcoin and other crypto assets?
First, we can acknowledge that news has a purpose. And that purpose is not to inform and educate but to influence and shape.
This takes the form of narratives to test ideas and determine the most powerful angle to promote the asset. This doesn’t just apply to crypto, it’s a feature of the traditional markets as well.
News, forums, blogs, articles and newsletters are simply a vast marketplace of narratives.
We can see that being aware of narratives and observing how the market behaves as they unfold, can tell us which ones are important.
The important narratives are the ones to understand and pay attention to. Then you consider changes in these narratives as part of your trading approach.
Digital gold, for example, hasn’t produced much juice. But on the other hand, Bitcoin market action shows us that Michael Saylor is a major narrative to understand on the upside and the downside.
Another thing we can see is that the news that everyone knows isn’t worth knowing. The valuable information isn’t widely known yet. Or it’s a perspective that has not been widely adopted.
So important market-moving news is almost always a surprise.
As Don Coxe, the well-known BMO Harris Bank strategist, used to say, he didn’t care about what was on page one of the paper. He was interested in what was on page six on its way to page one. That’s where the big money was made.
What’s on page six for Bitcoin?
As a trader, your job is to increase your equity or coin curve up and to the right. And you want to do this in a way where you protect your gains from unexpected losses.
That means you have to do the stuff that isn’t sexy. Things like taking risk management seriously, including having a trading plan. That plan includes how you might respond to news around narratives that matter and react to those narratives that don’t. And how to determine the difference.
It means evaluating your performance as the market moves around to enhance your long-term performance.
It means keeping some gains from good times for weaker times, so you can be confident instead of a nailbiter when there is a drawdown.
Remember, every article, blog post, and news release is there for a reason.
It’s there to influence you. To shape how you think and what you do.
The headline risk is real and ongoing, and it’s up to you to figure out what narratives and news to pay attention to. These are the ones that move the market and change perception in a meaningful way.
By thinking differently about news and narratives, you can take steps to prepare your account for up and downside trading surprises.
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