There are two very important things you need to keep in mind before looking at the cryptocurrency markets.
First, they are global. Second, they are thin.
While the New York Stock Exchange is only open 6 ½ hours each day, from 9:30 am to 4 pm, with light “overnight” trading for a few hours on either side, and almost no trading on the weekends, cryptocurrency markets never close. Asian trade starting at 9 pm will signal European traders around 4 am will signal U.S. traders around 9 am and it never stops.
Second, the total crypto market has less market cap than Facebook Inc (NASDAQ:FB). Bitcoin has about 40% of that. Since many cryptocurrency holders are told to HODL — Hold On for Dear Life — it doesn’t take a lot of volume to impact pricing.
And there’s a third important point about these markets, but it’s a point shared by most markets, including the U.S. stock market.
All the analysts are selling something.
Many Thieves, Few Cops
Even cryptomedia outlets that aren’t controlled by trading houses are selling a worldview, the idea that you can trust crypto but should distrust what they call “fiat” currencies like the U.S. dollar. This is supposedly because the blockchain doesn’t lie. But blockchain users do.
Scams meant to steal bitcoin and other cryptocurrencies continue to proliferate, like one recently found on Twitter Inc (NYSE:TWTR) where thieves impersonate famous people and then ask to exchange coins in order to get traders’ wallet details and empty them. There are also Bitcoin Ponzi schemes, scams based on Initial Coin Offerings, and entire cryptocurrencies, like OneCoin, which now seen as scams.
Normal financial laws are being enforced, but laws covering cryptocurrency are still evolving, they’re still only national in scope, and some nations desperate for cash, like Venezuela, are trying to get in on the scam side.
Price Discovery Still Difficult
Meanwhile crypto forks continue, the latest being Litecoin Cash, which is unaffiliated with LiteCoin. Some are already accusing LiteCoin Cash of being a scam. Despite this, the price of LiteCoin itself has risen sharply since the fork.
Markets like LiteCoin’s are attracting more attention because they have more price action. They’re also smaller, just $12 billion in this case, and thus even easier to manipulate than bitcoin, which had a market cap of $187 billion on Feb. 21.
The introduction of bitcoin futures trading by the CME Group and Chicago Board Options Exchange has also aided in price discovery. These markets indicate Bitcoin prices should fall over the next few months but there’s a caveat, in that the futures are also thinly traded, with fewer than 5,000 contracts outstanding for March on the CBOE’s XBT.
Where’s the Action
When prices rise, and bitcoin itself rose 30% for the week ending Feb. 20, you can get a clue about the action by looking carefully at what time of the day prices move.
A look at the last seven days’ trading, ending Feb. 21, shows prices mainly falling overnight, when Asians are awake, and rising during the day, when Americans are awake. There were three sharp downturns in the price over the seven days, each happening during the overnight hours in the U.S.
It would seem, then, that cryptocurrency trading is becoming more global, with more Americans being talked into it and more Asians selling out. Bulls will argue this means cryptocurrency is going into stronger hands.
My own view is that a sucker is born every minute.
Dana Blankenhorn is a financial and technology journalist. He is the author of a mystery novella involving Bitcoin, The Reluctant Detective Saves the World, available now at the Amazon Kindle store. Write him at [email protected] or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story. To follow the value of crypto currencies bookmark https://coinmarketcap.com/