In every market, there’s news and there’s noise. The news is about major developments that change market conditions and eventually move prices. The noise is wishful thinking that caresses the ears of investors like the Sirens in Homer’s Odyssey, but has limited or no effect on prices.
The Bitcoin market is no exception to this rule.
There has been plenty of news lately. Like the ban of Initial Coin Offerings (ICOs) and the ban on Bitcoin trading by Chines authorities. China is a big market for Bitcoin. That’s why this news crushed Bitcoin prices.
Or the news that Japanese authorities are considering regulating the Bitcoin exchanges. Japan is another big market for Bitcoin, and this news has instilled confidence in the digital currency, helping it to recover.
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*As of Monday, October 9, 2017, at 10.15 am. Source: Coinranking.com
Meanwhile, there has also been a lot of noise.
Like a story last week that Goldman Sachs is expanding into Bitcoin trading, which had little impact, if any, on Bitcoin prices. Apparently, Bitcoin traders didn’t believe the story, as there’s a big difference between considering a new business and committing the energies and resources to develop it. That could explain why Goldman Sachs never returned my call to confirm and comment on the story that circulated social media.
Then there’s the story about IMF using Bitcoin instead of dollars in its financial dealings. Why is it noise? Because there’s no explicit statement from IMF that such a proposal is on the table. Besides, those who circulate these “news” items ignore basic facts about IMF and currencies.
As previously explained here, big governments will never let Bitcoin become a major currency, because they will have to give up segniorage income – the benefits associated with printing money.
That’s especially true for the American government, which derives segniorage income from printing dollars that are used as international currency — and for IMF, which is an institution controlled by America.
Investors in Bitcoin should be reminded that day-dreaming isn’t a strategy. They should learn to separate the news from the noise.
This story originally appeared on Forbes. Image courtesy of Shutterstock.