Showing posts from 2019

Understanding Cryptocurrency Markets Sudden Rallies and Crashes

Since yesterday we are experiencing another sudden cryptocurrency markets crash between %5 to 10% and beyond. The usual silly explanations of self-styled crypto-experts started to appear on Forbes, Bloomberg, and a few other minor sites. As I have written in the past here on my blog, the reason for such sudden and violent volatility has nothing or very little to do with the real-word events capable of influencing the so-called ‘market sentiment’. The sudden and violent volatility has nothing or very little to do with the real-word events capable of influencing the so-called 'market sentiment.' In my professional understanding, the wild volatility of the cryptocurrency markets is made possible, but not necessarily caused, by the massive use of bots in an HFT (High-Frequency Trading) context. This statement becomes clear if we consider that currently more than 95% of all crypto trades by value are arguably conducted by bots versus the approximately 50% on the US stock market

Sad day for the cryptocurrency world: Is this the end of a decade of dreams?

Earlier today the 10-year Treasury note fell below two-year yields for the first time since 2007. It sparked a nearly 3% decline in the S&P 500 and sent investors toward safe-haven of utilities and real-estate stocks. The obvious expectation was that at least part of the investors would have moved toward the cryptocurrency market. But that did not happen. Not only. The cryptomarkets heavily crashed in parallel and across the globe. It seems there is only one single explanation for such a largely unexpected event in the crypto realm: The cryptocurrencies appear as being highly vulnerable to the traditional financial and stock markets. I stress the qualifier 'highly because in front of a 3% decline of the S&P 500 we assist to a fall of crypto markets way beyond 10%. Should we declare the end of a decade of dreaming an alternative to the traditional dysfunctional financial system? Too soon to conclude. We still need more studies to better understand the underlying factors. How

Is high volatility inherent in cryptocurrencies?

My short answer is no! The long answer needs more clarifications.  After 18 months or so of observing the globally aggregated crypto data posted in real-time, I haven't seen yet anything intrinsic to mineable cryptocurrencies that could be considered as a built-in cause of the stunning market volatility.  In my perspective, the current high volatility could be explained by 2 factors that are only partially present in the conventional stock markets:  [1] Massive market manipulation via bot-based automation enabled by High-Frequency Trading (HFT) context, and broadly exacerbated  [2] By the cryptocurrency holders' demographics often made of a very young and largely unsophisticated cohorts who tend to develop swarm-styled collective behaviors induced by social media's echo chamber effect.  While the behavioral determinants could and would eventually evolve over time, the market abuse tends to remain immutable until a regulatory intervention supported by trade surveilla