There's price reaction delay in bitcoin, here's how investors can benefit – TradingView
(Kitco News) Bitcoin is still an inefficient market when compared to U.S. equities, which means that there is a price delay between the timing of a news item and bitcoin’s reaction, said TradingView general manager Pierce Crosby.
He added that this delay creates a great opportunity for investors and here's how.
"There is still a significant delay between the initial event and when the price actually moves. In equity markets, you usually have events highly correlated with price movements," Crosby told Kitco News last week. "That does provide that price opportunity for retail investors to capitalize on."
TradingView noticed this delay when researching its bitcoin's timeline, which is "the first comprehensive look at price movements" that correlate with major events going back to 2009.
"Looking solely at BTC price moves gives an incomplete view of why its price fluctuates the way it does, in a seemingly volatile manner. Timelines are the first source to share price movements along with corresponding real-life events," Crosby said.
Aside from connecting events to specific rallies or selloffs, the bitcoin timeline also reveals the price reaction delay in the crypto market.
"The immediate thing that was apparent was just how long it takes for bitcoin to price things in. For example, when China removed restrictions from bitcoin investing in October 2018, bitcoin rallied over the next period of four-five days," Crosby described.
A comparable event in the U.S. equity market would be immediately priced in within seconds. "The example I like to use is China, for example, taking a stand against Alibaba. Prices immediately reflect that in the stock," Crosby noted.
Bitcoin is one of the more inefficient markets because there are very few institutional players relative to other markets, he said. As a result, price appreciation and deprecation have a much longer time scale.
"In the U.S. equity market, for example, there are so many operators that price appreciation is immediately captured by algorithms, which crawl information on a daily basis and then trade programmatically. So, the retail investor would never have such an opportunity to capitalize on that just because the speed of that trading is in a picosecond," he said.
And even though bitcoin is on its way to being more efficient, it is not yet there, Crosby added.
When asked a question on everyone's minds — how much further can this bitcoin rally go — Crosby pointed to a specific technical level, which would clear a path to higher levels once breached.
"There is a lot of technical resistance at $38,000 and $42,000. Traders are looking for a breakthrough of $38,000 as validation of the next leg up. We have to blow through a lot of orders sitting there at the $38,000. We keep touching it and dropping back down. That's what people are looking for in the near term," he said.
Further than that, bitcoin does not have foreseeable resistance. It all depends on the adoption curve, Crosby explained.
"My personal thesis is that this technology adoption by big players like Microsoft, PayPal, Square will not slow down in 2021. Momentum drives future momentum. As a result, we still have quite a ways to go in terms of adoption. What is holding the price back currently is people are profit-taking," he said.
It is natural to take some profits off the table when your investment doubled from a month ago, Crosby stated.
The earnings season is a key thing to focus on this month, especially when it comes to paying close attention to how many companies mention the adoption of bitcoin.
"A lot of companies are going to be talking about plans for the new year. We are keeping track of the number of mentions that people have put out there regarding bitcoin. We do see a significant portion of quarterly earnings now, including things like new business and innovation," Crosby pointed out.
On top of that, bitcoin will continue to be an anti-dollar play, meaning when the U.S. dollar declines, bitcoin rises and vice versa.
"Former Fed chair Janet Yellen said during her testimony that she would consider looking at 50-year Treasuries. If she is Treasury secretary for the next four years, the idea that the U.S. would start launching 50-year Treasuries will be bearish for the Treasury market, and that closely ties to the U.S. dollar. As we have seen over the last few months, the decline of the dollar almost perfectly correlates with the performance of bitcoin. This is the whole argument that bitcoin is a better store of wealth," Crosby said.
U.S. stimulus is also a big driver of bitcoin in 2021. The more stimulus, the weaker the dollar, the higher the bitcoin price, he added.