After another adverse event, such as the hacking of the Bithumb cryptocurrency exchange and the intervention of the Japanese regulators in the affairs of exchanges based in the country, a frustrated user of the Reddit thread r/Bitcoin asked why the crypto industry reacts so quickly to negative news, and responds to industry-friendly news so slowly? There were more than 70 comments under the post, and we decided to review the main points of view of the users and understand the reasons for the reaction of the crypto community to negativity.
Fear of Loss Is Stronger Than the Desire to Earn More
"People come to this industry for money, they need money and nothing more," stated one of the users who commented on the post. Therefore, the investments in such a volatile market are perceived as potentially very profitable.
By relying on the basic prerequisites of technical analysis, behavioral finance researcher Martin Pring argues that in the market "all decisions are made by two emotions: fear and hope." Fear of loss and hope of increasing assets affect all actions. For example, at the last sharp drop of Bitcoin in early June, sales of assets sharply increased by 11%, because traders were frightened of the possibility of their coins losing value. At the thought of missed opportunities for earning on a falling coin, inexperienced players of the crypto market start casually investing in altcoins.
Another financial analyst who studies trading behavior, Hersh Shefrin, believes that in addition to fear, people show faith because they believe in themselves and their calculations. "When traders are frightened, they focus on the unfavorable aspects of trading. Faith is the polar opposite of fear. If this feeling arises, they focus on the favorable aspects of the trade and think, "I wonder how much I could make on this transaction?” They are counting on making a profit, instead of constantly worrying about the amount of money spent," Shefrin says.
Too Many Conversations
"The blockchain industry is too advanced. Almost everyone wants to become an expert and express their opinion. And those who do not want to appear clever listen to the advice of numerous experts who themselves often do not know what to do and how to act," one of the users of r/Bitcoin expressed his opinion under the post about the reaction of the crypto market to bad news.
Thanks to programmers and other professionals, the blockchain industry is not only one of the most progressive, but also one of the most open to communication. In order to learn the opinion of one or another specialist, it is enough to go to his social network account and read the posts, in which, as a rule, all important events of the crypto sphere are evaluated. From a professional point of view, this kind of communication refers to "fact journalism" and is the fastest way to receive news. More operative and expressive is the information on Twitter, which is not surprising because there the subject of cryptocurrencies is inferior in popularity only to the statements made by U.S. President Donald Trump. Tweets are updated regularly, and during the day there are brief reflections on the past, present, and future situation of Bitcoin and other coins. Their costs are predicted, financial forecasts are made, reviews are given on the technical component of blockchain, and much more.
Because of the diversity and oversaturation of "expert" opinions, a dissonance is created between understanding the actual situation and the emotions of crypto enthusiasts. The polyphony of the voices is misleading, and especially the newcomers of the industry are experiencing great stress when receiving so much information. To avoid this, it is necessary to identify the most significant and important analysts who base their opinions on technical and economic analyses.
Conventional Traders Are Puppets
"Bad news makes more money than good news. Whales earn on volatility, and we are under the influence of a bearish smart market, so any event will be directed against the market," another user of the crypto blog believes.
This reasoning should not be correct when considering blockchain technology since all participants in a decentralized system are equal. In fact, however, it turns out that owners of large amounts of cryptocurrencies can manipulate the reaction of traders and purposefully regulate the market for their needs and desires.
For example, in April 2018, the cost of Bitcoin fell by $200 in a few minutes due to the dumping of 6,500 Bitcoins from one whale’s wallet, the value of which at the time was estimated at $1.5 billion, and the sale of 6,200 Bitcoins from another wallet. "The best explanation is coming from those whales in the market who want to have some sort of control over what’s going on. It’s some sort of manipulation from actors," suggested Jonathan Benassaya, founder and chief executive officer of IronChain Capital.
The Media Immediately Hollers of Impending Doom for All
"People still cannot believe that technology can withstand even the intellect and the influence of the United States. Every time these nonbelievers hear the news that Bitcoin was hacked, they start selling all their coins immediately and think about the finally bursting bubble," another Reddit user shares his opinion.
The media, along with social networks, play an important role in manipulating public perceptions. In 2002, the World Bank first published the book The Right to Tell: The Role of Mass Media in Economic Development, which deals with the indirect influence of the media on the national economy.
"A free press is not a luxury. It is at the core of equitable development. The media can expose corruption. They can keep a check on public policy by throwing a spotlight on government action. They let people voice diverse opinions on governance and reform, and help build a public consensus to bring about change. Such media sources help markets work better. They can facilitate trade, transmitting ideas and innovation across boundaries," believes the author of the book Roumeen Islam.
The fundamentals of interaction and information of the classical economic system with the media flow into blockchain editions and acquire their own specifics. Crypto news channels easily induce excitement with frequent publications about the fall of prices or about hacker attacks. When the Chinese authorities banned ICOs in September 2017, the panic resulted in a serious drop in the price of Bitcoin from $5,000 to $3,000. But even those events that are not of cryptocurrency nature and do not concern the industry, for example, political relations between the U.S. and other countries, will influence the mood of the masses, and therefore, change the crypto industry.
Some economic experts believe that the news factor affects short-term trading forecasts and varies depending on the source profile. In early 2018, when South Korea's regulators issued a premature statement on the prohibition of cryptocurrency trading, Bitcoin and many altcoins began to fall, while the Chinese coin NEO continued to grow amid positive news from China.
Trust Takes Time and Trials. Fiat Money Is Not Safer Than Cryptocurrencies
The words of one of the users of r/Bitcoin, who answered the question about the reaction of the crypto community to negative news can summarize the above assumptions. The first Bitcoin payment system was created in 2008. Over the last ten years of active development, the industry has made some progress in improving the technological process, invented more than 1,500 coins, commissioned crypto exchanges, gained some confidence from fiat banks and, most importantly, from ordinary users who can use crypto coins to pay for some household needs.
The electronic economy, like the classical one, requires humanity to trust it and hope for a bright future, and that will be achievable only with a clear knowledge that blockchain and cryptocurrencies will change our lives. In addition, to achieve today's level of economic sustainability, humanity needed more than one millennium in the opinion of the researcher and author of the book Sapiens: A Brief History of Humankind Yuval Noah Harari, who speaks about the evolution of economic systems and attributed their success to the fact that society believed in them and the improvement of their lives.
"70,000 years ago, Homo sapiens were minor organisms living their lives somewhere in Africa. In the next millennium, they turned into the ruler of the planet and with the help of faith in God or money managed to get where they are now . . . Now the newest technologies will change everything," Harari writes.