How to Trade the News in the Cryptocurrencies Markets

This is a small primer on how you can trade the news in the cryptocurrencies markets. I will show several trade examples of different news events that have moved crypto markets in the past and we’ll examine how prices reacted during each one.

Problem of no scheduled news releases

With the lack of scheduled news items like the NFP, GDP or CPI, when trading the news crypto style we’re left with trading the unexpected. There is no set time when we need to be in front of the charts in order to catch and profit from the latest news item. Crypto news can come at any time and through any venue: social media, forums or designated cryptocurrencies portals have all broken different news in the past. While certain major USD news releases can and have triggered moves in bitcoin prices in the past (major Federal Reserve policy decisions), the most powerful moves in cryptocurrencies are usually triggered by news that affect cryptos directly.

The arrest of Charlie Shrem, Bitcoin, January 27th 2014

I’ll start off with a recent example from the bitcoin market that occurred on January 27th, 2014. I will provide some fundamental and technical backdrop leading up to the actual news. Read step 6 in my other article on Forex News Trading to see why this is important.

The day started relatively slow. Most of market participants were focused on the growing spread differential between MtGox prices and prices at all other bitcoin exchanges. The differential crossed the 20 percent mark several times during the day. At one point, MtGox BTC/USD was quoted at prices that were 250 USD higher than the other exchanges. Questions emerged about MtGox’s longterm viability. Aside from the exchange spread differential increase, the rumours didn’t trigger a substantial move in bitcoin prices.

Bit later in the day, we got some more bad news as the Russian Central Bank essential banned bitcoin usage in the country. The Bank classified bitcoin and all other cryptocurrencies as ‘’money surrogates’’ and later in its statement added that using money surrogates is illegal. The central bank went even further by suggesting that the mere usage of cryptocurrencies can be a reason to press charges related to facilitating money laundering and terrorism. Money laundering is punishable with up to seven years in prison in the country, funding terrorism carries a sentence of up to 15 years. There are disagreements about how much of these regulations will be implemented in practice but there can be no question about the Russian authorities change in stance toward bitcoin. With outlawing the mere usage of the cryptocurrency, the Kremlin obviously wants to see bitcoin die a slow death. The Russian based exchange stopped operating immediately after the central bank’s announcement. Surprisingly, this news caused almost no movement in the BTC/USD exchange rate.

The real market mover came few hours later. By this point, bitcoin was trading down at 806 on BTC-E after opening the day at 822.27. At around 11 AM EST (5 PM CET), reddit users first broke the news that the CEO of BitInstant (a Bitcoin exchange), has been arrested at JFK airport in New York. Charlie Shrem was accused of selling over $1 million in bitcoins to Silk Road users, who would then use the coins to buy drugs and other contraband. BitInstant was no longer a major player in the bitcoin world but its CEO was still a vice chairman of the Bitcoin Foundation. I suspected that btc prices would fall as his arrest would be used by critics to again paint bitcoin as the currency of drug dealers and tax dodgers. But I had to wait and see if the market agreed with my assessment. Almost 30 minutes passed by with hardly any movement. BTC/USD slowly drifted down to the 800 figure but here the down movement stalled. But as the news slowly propagated through social media and the different bitcoin news outlets, the bottom fell off the market.

I took a short as soon as bitcoin broke through the 800 level on BTC-E. Always wait for the market to confirm your hypothesis. Those first couple of percentage points are always the costliest. While you are certain to never catch the very start of a market move by staying on the sidelines and waiting, in the long run you will save yourself from a lot of grief. In my example, I was perfectly willing to wait until prices broke through the 800 figure. My short executed around 798.50, 7.50 points lower than the 806 figure BTC was trading at when the news first hit the wires.

After falling by 22 points in 17 hours, the BTC/USD only took 18 minutes to fall 13 points to 785.50. Forty minutes later, bitcoin was trading at fresh lows at 751.00. From here, BTC/USD staged a small dead cat bounce to 784. Few hours later as Asia woke up and got a hold of the news, new selling ensued pushing prices to 727.11. But as the new day and trading in Europe got underway, the BTC/USD recovered and less than 24 hours after the negative news bitcoin was trading back at its pre-news price of 806.

So how did I do? Not very well. I pocketed around 10 points by getting out near 788.50. I misjudged the longevity of the move and was caught with my pants down. The recent technical picture was looking rather bleak for bitcoin with a sequence of lower lows and lower highs leading up to the news. I assumed that this down move was going to ‘’break the camel’s back’’ and be the start of a sizable fall. Alas, this did not happen and I was left with a small win of 10 points out of a maximum move of over 70 points.

What are the lessons?

Pay attention to the overall fundamental and technical picture surrounding a news event. If this news broke in an upward market I would be far more reluctant to take a short. In addition, I would also be far more conservative in taking a profit and I would likely close my trade sooner than I did. While this would have been beneficial for me in this particular example, in the long run you would do better if you can learn to hold on to your winning trades. This is especially true with bitcoins where the spread plus exchange fees can gobble up 2 to 3 % of every trade you make.

Dogecoin gains 300% on Jamaican Bobsleigh drive

Doge is a fast rising new cryptocurrency that took the altcoins market by storm in December. The new virtual currency is based on Doge, a popular internet meme that uses the Shiba Inu dog talking in broken English. Less than 2 months after launch, the new crypto was already trading at 0.00000071 vs BTC on Cryptsy (that’s 0.000568 in US dollars). On January 18th 2014, news broke that the Jamaican bobsleigh team qualified for the 2014 Winter Olympics but was lacking in funds to travel to Sochi, Russia. The same day a post appeared on Reddit.1). Despite initial scepticism the drive was very successful and in less than one day over 26 million Dogecoins were donated to the cause. Liam Butler, who runs the Dogecoin foundation, described his reasons for supporting the Jamaican team:

‘’As someone who grew up in the 90's, Cool Runnings was the ultimate feel good movie about underdogs out of their element achieving their dreams’’ Butler told the UK newspaper, The Guardian. Cool Runnings is a 1993 movie loosely based on the story of the Jamaican bobsleigh team qualifying for the 1988 Winter Olympics.

As the drive to support the Jamaican’s trip to Sochi intensified, Dogecoin’s price skyrocketed. On day two DOGE/BTC had already more than doubled in price to 0.00000156. Butler proceeded to sell into the rally, damping DOGE prices to 0.00000102: Myself and Jackson Palmer (creator of Dogecoin) were at a local pub trivia in Sydney when we noticed the value of Dogecoin had more than doubled since we'd last checked so we raced back to my house to ensure we could get the best price for the donations in a form the team could actually use.

But as news about the fundraiser spread and major media outlets started to pick up the story, Dogecoin’s price went to the moon. On day three, price broke the 0.00000200 level and spiked all the way to 0.00000280 (0.00224 USD), a rally of over 300 percent compared to its pre-Jamaican value.

The chart above shows the move up from 0.00000071 to 0.00000280 on January 21st. However, DOGE/BTC couldn’t sustain the high level. As publicity decreased, Dogecoin retreated back below the 0.00000200 mark to 0.00000180. The next week saw some ups and downs in the BTC exchange rate but ultimately the new crypto managed to form a stable base around the 180 figure. A week after the drive, one Doge was worth 0.00000187.

Dogecoin doesn’t move on Indian story

On January 29th, the Dogecoin Foundation launched another effort to send olympians to Sochi. This time the targets were three Indian winter athletes: luger Keshavan, alpine skier Himanshu Thakur and cross-country skier Nadeem Iqbal. The three individuals remained without funding after the country’s Olympic Association was suspended from the International Olympic Committee. Dogecoin users proved their charitable streak again by donating 4.2m dogecoins, around $7,000 at January 30th prices. Because the athletes will not be allowed to fly the Indian flag, questions arose if it would be possible to use a Dogecoin banner instead.

As can be seen from the chart above, DOGE/BTC barely budged on the news. Granted, this story doesn’t sound as cool as sending the Jamaican bobsleigh team to the Olympics. But another effect at play is the public’s saturation with this type of news. With each new drive, the causes and the amount have to get larger and larger in order to generate the same public interest as the Jamaican story.

This seems to be exactly what Doernberg from the Dogecoin Foundation has in mind: We’re going to be doing a fundraiser more for people who are in serious need. The Olympic project is great, and you know, in keeping with the fun and zany attitude of the coin, but we’re also looking to do more serious charity projects.

It remains to be seen what this fundraiser will focus on and if the drive will manage to pump up the price of Dogecoin. The opening ceremony for the Winter Olympics in Sochi, Russia will be held on February 7th 2014. If (and this is a big if), the three Indian athletes are allowed to carry a Dogecoin’s banner, it would be reasonable to expect a major jump in the price from the resulting publicity. Considering Russia’s recent attitude toward bitcoin, I consider this a very low probability event. Still, stranger things have happened and beyond the effect on the DOGE/BTC price, a Dogecoin flag at the Winter Olympics opening ceremony would be a sight to see.

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