TL;DR What everyone thinks will happen, won’t happen.
There’s a narrative doing the rounds right now in the crypto world. After 11 months of bear market, the new uptrend will begin when Bakkt launches, opening the floodgates to institutional money. 12 December will see an uptick in the price of bitcoin, and then the good times will roll once again.
It makes perfect sense, but it just doesn’t work like this. While Bakkt and other regulated products do open the way for institutional money and significantly higher prices, the short-term impact on price is far from certain. The reason is that all the information about Bakkt is already out there: we know when it’s going to launch. So the impact is already priced in.
Crypto trader Alessio Rastani gives a great overview about the two different types of information at play in a market: information for the Masses (i.e. almost everyone), and information for the Classes (i.e. the 1% of professional traders). This is why the relationship between news and price is tentative, at best: by the time the ‘news’ is public knowledge, it’s already old and professional traders have already made their moves. Moreover, pro traders – including institutions – are often the ones putting out the news in the first place. The narrative the public sees is the one they determine. In short, price is a far better indicator of what’s going on than the news cycle. The chart contains all the information you need.
Rastani gives some good illustrations of this for the bitcoin market. A good example from today is the news that China has just ‘unbanned’ bitcoin once again. Last time a China ban came into force, the market apparently dumped – but quickly recovered and went on to make dramatic new highs. This was expected by the pro traders, who took it as an opportunity to pick up some discounted BTC. This time? China unbans bitcoin and the market drops. We’ll see where it goes longer-term, but make no mistake – the top traders will have profited from the expectation that the Chinese news would be interpreted as bullish by ‘dumb money’.
And this is why we need to be careful trying to forecast what Bakkt will bring. When everyone is dealing with the same information, no one has an edge. So all the regular traders thinking they will profit from the launch may be in for a shock. While Bakkt’s launch is bullish overall for the sector, that week itself may see some unexpected volatility and a shakeout as the 1% take profits at the expense of Average Joe – and then pick up discounted BTC to enjoy the new rally.
TL;DR Bakkt is positive news, but don’t get rekt by the Classes.
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