 | This is another classic case of the Chinese New Year narrative. That's when people try to pull out any news happening around that time, and try to make it fit as a narrative to explain Bitcoin's price, even if it doesn't really fit. Back in 2018, we had the famous Chinese New Year narrative that tried to explain why the market was crashing. And later became a meme, because of how ridiculous that narrative turned out to be. If you want a more detailed example of news narratives used by people to explain price, I wrote a detailed post about one those: https://np.reddit.com/r/CryptoCurrency/comments/m5ouvo/heres_a_little_secret_the_market_didnt_dip/ KazakhstanThe hash rate of Bitcoin has dropped 13% due to the events in Kazakhstan. This has been used to explain the current drop in price. What is the hash rate? The amount of computing power used to validate and secure the network. Is 13% a major change or unusual change for the hash rate? No. There's fluctuations of harsh rates every day. And fluctuation of around 10% in a day is actually not uncommon. You can see how squiggly the hash rate chart looks, with big rise and drops in rates on a daily basis. Sometimes more than 10%. How would a major hash rate drop affect the price? We have a perfect example of this, with the banning of mining in China, giving us one of our most dramatic drop in hash rate. That's the big dip in July. Did the price drop after this big drop in hash rate from the mining ban in China? No. Instead, the price rose from around $30K to $50K. Does that mean that the price will actually rise when hash rate drops? No, it shows in a more dramatic way that the market really doesn't care about drops in hash rates, even if they are big. Fed interest ratesInterest rates are set to rise in March. The minutes published about this on January 5th, is what's being blamed for the price drops we've been seeing. Are the Fed minutes what caused the drops we've been experiencing in crypto for the past few weeks? No, the Federal reserve minutes were published last Wednesday. Bitcoin's price has been dropping since mid November. With the first major dip at the beginning of December. The phase of the drop we're in, started after the "Santa Rally". We had a little rally, then on December 28, we started the next phase of the dips. What about that big dip on Wednesday, that happened on the day of the Fed minutes? Federal reserve minutes were released on Wednesday at 2pm. The price had been dipping since 12pm. Unless crypto traders have the gift of foresight, it looks like the dip was already happening before anyone knew about the date set in the minutes, or its effect on the stock market. Fed minutes coincided with a rough break in the crypto market. But not closely enough. Unless people in crypto had a crystal ball. If it had been a reaction to Fed minutes, the big dip would have happened in the hours after it broke in the news. Not in the hour before the minutes were even published. Here's the 1 minute chart to show more closely that Bitcoin was already on a downward trend that day (it's also been bearish in the prior days), and started cascading down after 11:30am and prior to 2pm. Likely due to an already decreasing demand seen in the buying orders, and lower highs forming. The minutes may have added fuel to an already existing fire, but they weren't the cause of an already bearish trend: Are the rates themselves something the market didn't know? The market has known about interest rate rise, even about the amount, for months. It just didn't know exactly when in 2022 it would start. That's the only part about the minutes that was a surprise. Is this gonna be a big raise, above what the market is used to? No, it's a small raise that will still be below 1% this year, and take us back to the same rates as 2020. So nothing new. And by 2024, we'll be back to around 2%, so back to 2018 rates. What about the cost of borrowing and bonds? Is it gonna become to high? Those are also gonna see only a small raise. So they are still gonna be very low. Just not as ridiculously low as they are now. ConclusionWho would have thought that it was actually supply and demand all along that caused the price action, and the bearish market trend that was already unfolding in the market. The news might have added a little more fuel to the already existing fire, but a news event can't cause price trends before even happening. Time doesn't reverse. As I've pointed in my example, people like to point at news events to explain price action and fit it into a narrative. I'm not saying news events don't have an effect on the price, but coincidence is not causation. Especially when most of the time, the narrative doesn't even fit. [link] [comments] |
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