We are entering a whole new era in trading.
Gone are the days of panicking when prices go up or down, and gone are the endless diatribes from the mass media which point the finger at the capital markets in all forms when huge price changes take place.
The last time the airwaves were alive with the sound of dissenting voices discussing losses due to volatile trading conditions was a long time ago.
This year, things are very different. The controlling influence is no longer within the hands of traditional market makers or trading venues, it is firmly in the hands of the community, and absolutely everyone including professional traders and large financial services companies have accepted it without even as much as a raise of the eyebrow.
Since January, when the stock markets became the target of Reddit forum members which were able to begin influencing the price of what is known as ‘meme stocks’, the movers and shakers within the commercial world have cottoned on and begun attracting the attention of social media influencers by touting their startups on the internet with valuations of huge sums, and indicating their wish to list these entities on major stock exchanges such as NASDAQ under the special purchase acquisition (SPAC) method which bypasses the usual due diligence required to IPO a company.
What investors and traders are left with is a quick-to-market public listing of a formerly hardly known company which suddenly has a high value, and is of interest to forum-based influencers. Had this occurred just two years ago, the world’s authorities would be up in arms, but now it appears to be very much part of the trading of assets, the assets themselves and the method being totally new.
The same is now the case for cryptocurrency, which has become the subject of social media influence by self-styled market movers who have been able to change the value of crypto assets dramatically, with the same response from the investing public as the aforementioned meme stock and SPAC listing methodology.
Literally nobody says a word. A few years ago, Switzerland’s national bank pulled the plug on the measure that was in place between the Swiss Franc and the Euro, leading to major volatility which caused banks to have capital liquidity problems, and the authorities went absolutely hopping mad, yet the negative balances which ensued were absolutely a drop in the ocean compared to the almost $1 trillion that disappeared from the value of cryptocurrency in May.
Yet not even a peep. In fact, it got more people interested. As Warren Buffett’s investing ideology goes, an asset is still an asset even if it loses value. It just means that the asset can be bought at a cheaper price, and it becomes a potential asset which makes people interested in it.
So, we live in a world in which the private individual is calm, analytical and interested in looking at extreme volatility in cryptocurrency, influenced by something a simple as an opinion on an internet forum by someone who is nothing to do with the banking or financial servies business. We have arrived at the genuine point at which community-driven financial services is here.
Today, however, it is not just the private punters who are showing the world their savvy, it is also the professional traders.
Those who got into Bitcoin just as it dropped to almost half of its value in May were looking to speculate on a return to high values, and no doubt were glued to their Twitter accounts to see what would influence it upwards. Professional traders have been doing the same, it turns out, as derivatives data from professional trading venues has today shown that, despite Bitcoin going up by a whopping $10,000 during the course of the day, professional traders have largely hung on and not sold.
This could be down to two possible reasons, the first being that perhaps the professional traders are waiting for a potential return to high values and think that waiting is worth the risk in case they can maximize profits and sell out at a higher price, or the second possibility that they are not confident that it will not crash again quickly.
There is a distinct difference between self-directed professional traders and automated trading robots, EAs and algo trading entities in that often, the self-directed professionals are more risk-averse and tend not to make rushed decisions when volatility takes place.
By contrast, EAs, algos and retail traders tend to ride waves of volatility for a quick exit when the value goes up.
It could be that the professionals are now well aware of the ability for groups, or communities of like-minded people to influence the price of any asset at all these days, so therefore holding out when such a large rise takes place could be a method of trying to influence the price by making it obvious that they are not selling and once that gets noticed by social media, a bearish mood would perhaps set in and drive the price downward, making it an access point for professionals to buy more.
Derivatives markets have shown no sign of any sell-off by professionals, however the derivatives market itself is changing and becoming a very good place from which to gauge the way traders and investors are going.
Leveraged derivatives are now 10% less traded globally than non-leveraged assets such as crypto or listed products. This could be why the big traditional listed derivatives exchanges are now offering cryptocurrency futures contracts. They can take the risk, even though futures is a big risk given the current volatility and meme influencing, because they realize that this is where the big volume is.
Simply put, the number of people trading, whether amateur or professional, is huge compared to leveraged products whose markets are made by traditional banks on an over-the-counter basis and the cost of executing and clearing them is far less due to the differences in requirements by clearing houses and regulatory reporting.
Therefore, the calmness demonstrated by traders when Bitcoin rises by an astronomical $10,000 in a short period of time is something new, and should be taken as seriously as the interest shown in Bitcoin and other popular cryptocurrencies with equal calmness following Elon Musk’s tweet which resulted in the $700 billion flash crash in May.
The world is a very different place now.