There are endless examples of articles explaining why a market has recently moved the way it moved. The value of these articles is what I want to question. Ironically, this is one of those articles.
First of all, what is a market? I'm talking about the simple nature, not the complex technical details of how a market functions. In essence, a market is a group of people making decisions. These people could be traders, casual investors, professional hedge funds, or businesses making exchanges.
What do all of these people have in common? They all make decisions they believe will benefit them. The result of all the combined decisions of all these different kinds of participants create the price discovery that we see in any market, be it stocks, bonds, or Bitcoin.
When it comes down to it, the only cause for a price move in any market ever is market participants making decisions to buy or sell. Period.
You might say, "What about economic factors?" If the participant believes these factors are real, they will act accordingly and depending on how many believe the same thing, price will be affected in reflection of their combined power. It still comes down to the combined actions of individuals (including institutions) which change price.
Why does this matter? It matters because this means that markets, including Bitcoin, are what are called living systems. If you tip an hour glass and watch the sand fall, slowly forming a cone shaped mountain, even if a computer knows the position and velocity of every single grain of sand, when the mountain collapses, the resulting position of each grain of sand and the new shape formed, are fundamentally unpredictable even by all the supercomputers in the world.
The same is true for the market but human behaviour is vastly more complex and complicated than an hourglass.
While on September 2 the probability of a price reversal to a potential low of $3000 was high, the resulting character of price movement was completely unknowable. It could've gone sideways, chaotically down, or straight down as it did.
So how is it that news was the cause if this bear move started days before JP Morgan's Jamie Dimon pulled his little stunt? This happens all the time in all markets and newspapers too.
A piece of news hits, then price moves according to the usual ebb and flow, then if the move is as predicted, everyone says, "See?! JP Morgan caused this." If price does something unexpected, a different cause is chosen. There is plenty of news on any given day to choose from. We hear from the traders who win and the traders who lose, trading on the wrong news, stay silent. All the while, price is moving in a fractal, chaotic, unpredictable manner, while everyone scrambles to explain the price action in hindsight and predict the future.
There is an illusion of predictability and an illusion of cause and effect. Sure, Jamie Dimon may have scared some Bitcoin holders into selling which may have pushed prices lower. That's not something we can ever know for sure and what would be the value of knowing? What's important to note is that in hindsight, it appears obvious that that news was the single cause for the price slump. It also appears obvious that anyone trading on that news was "right" about the impending slump. These are illusions.
What if the price had shot upward after the JP Morgan announcement? There would have been articles about another piece of news which "overpowered the fears" of Jamie Dimon's fib. All the traders who got it right would speak up about how much money they made. See my point?
It has been disproven time and again that reading the news helps to predict the market. A horoscope is as effective. This is only according to some of the greatest scientists of the last century, including Benoit Mandelbrot, the creator of fractal geometry which revolutionized many different fields including finance, biology, and computer graphics.
Yet we still see the same headlines. "Bitcoin drops 8% after JPMorgan's Jamie Dimon calls it a fraud." -CNBC
What is the value of articles like the CNBC one? Can we use the news to predict the market? Sure, but according to cutting edge science, odds are you'll lose in the long run.
Do we try to find a cause to ease our fears of even lower prices? Does it give us pleasure to have apparent knowledge about the market?
Whatever the reason, the only cause of the recent Bitcoin drop in price we can know for sure is that the power of willing sellers was greater than the power of those willing to buy.
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