Crypto itself may well be all it’s cracked up to be — a new paradigm to devour finance in much the same way that internet software has eaten the world over the past three decades.
Crypto markets meanwhile can be a hot mess. Rarely driven by fundamentals and often by hype, prices for digital assets can swing wildly depending on what’s spread across news and social media day-to-day.
We saw a taste of this earlier this week. A Matrixport analyst note throwing cold water on the widely-held belief that the SEC would soon approve the US’s first-ever spot bitcoin ETF correlated with a sudden 10% crash in the price of bitcoin (BTC).
The fall triggered a collapse across swathes of crypto markets, alongside $500 million in liquidations across derivatives exchanges, in only a few hours — the worst wipeout in months.
Bitcoin has mostly rebounded since, but not everyone is sold that the Matrixport post, which spread quickly on X, was directly responsible for the market tanking.
In any case, headlines for news both real and fake have for years amplified crypto’s trademark volatility.
The charts below plot crypto price action around major news events over the past six years or so. Each line represents a different news story and starts one week before the headline dropped and extends until one week after.
Each story’s impact can be seen around the middle of the chart at day zero. The charts start out relatively calm but they noticeably spread out after each headline hit the internet.
The real news
Our sample size is relatively small but the two positive stories clearly correlated with higher bitcoin prices.
An Amazon job advert for a blockchain and crypto lead in July 2021 preceded a 5% bitcoin pump over the following day. That rally maxed out at nearly 27% over the next week.
Granted, the entire market was in the midst of a major bull cycle at the time, so the power of Amazon’s job posting is hard to pin down, despite how many outlets picked up the news.
A CoinDesk report last year detailing how close the world’s largest asset manager, BlackRock, was to filing for a spot bitcoin ETF caused a similar stir at the tail end of the last bear market.
Bitcoin only rose up to 3% in the day after the news broke but had surged up to 23% in the following week, although much of that could be attributed to BlackRock’s actual filing one day after the CoinDesk article.
The analyzed negative news articles were similarly correlated with declines in the price of bitcoin.
BTC’s price fell nearly 11% in the 24 hours following a report from The Block indicating that Binance’s Shanghai office was shut down after a visit by local authorities in 2019 (for which former Binance CEO Changpeng Zhao threatened to sue the outlet).
Bitcoin fell about the same after China banned crypto exchanges in 2017 and again in apparent response to a Business Insider report the following year revealing that Goldman Sachs had shelved plans to open a bitcoin trading desk.
Goldman Sachs would reopen the desk three years later.
The fake news
Crypto is at times plagued by phony headlines and rumors. Sadly, they also seem to wield power over prices.
The positive fake news stories analyzed were correlated with higher prices. Bitcoin rallied up to 9% in the week after a podcast interviewee claimed in August 2021 that oil giant Saudi Aramco would soon be mining bitcoin through flaring. Saudi Aramco quickly denied the story.
A report from London outlet CityAM a week earlier suggested Jeff Bezos had directed Amazon execs to adopt bitcoin and even launch their own token.
Bitcoin jumped up to 15% in the day after that post and Amazon rejected the report shortly after, leading bitcoin to temporarily give up those gains.
But again, both fake news items dropped during the heat of the 2021 bull market. Any relationship between those headlines and bitcoin’s price was short-lived.
Last year, though, at the tail end of crypto winter in October, Cointelegraph tweeted an unfounded claim pointing to SEC approval of BlackRock’s bitcoin ETF.
Bitcoin immediately jumped up to 8% but quickly retraced once onlookers figured out the tweet was incorrect. Markets surprisingly held onto most of the rally, and then some, despite the awkward scenario for which Cointelegraph apologized later that day.
Out of the dozen or so headlines studied, perhaps the most impactful of all was a 2017 rumor borne of a 4chan post asserting that Ethereum co-founder Vitalik Buterin had died in a car crash in British Columbia. This supposedly led to project insiders dumping their ETH.
Ether collapsed up to 16% in the six hours after the car crash rumor first broke, and up to 21% in the following week.
Buterin eventually proved he was still alive by posting a picture of himself holding up the hash of a recent Ethereum block — a novel blockchain use-case at the time.
These charts reinforce how critical it is to stay wise to current events in the crypto space, especially for those interested in taking short-term positions in crypto.
Although over a longer period, individual stories seem to have less effect. So, it seems you can either ignore the noise and hold long-term or focus on the never-ending hum of news feeds for quick trades. The latter is surely far more stressful.
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Source: https://blockworks.co/news/fake-news-impacts-crypto-markets