Would traditional trading prevent the rise of Bitcoin?

Bitcoin is expected to be one of the most promising coins for this end of the year. However, according to an expert, it seems that trading stocks on the stock exchange is counterproductive for the first crypto in the sector.

Bad trading for crypto

Buying and selling tokens is the daily bread of crypto. Real business has built on this model and even though volatility continues to play tricks on the industry, it seems to be this model that has attracted much of the crypto sphere. However, constant trading could be the pet peeve of crypto and prevent it from reaching highs.

At least that’s what Jake Gordon, analyst for Bespoke Investment Group, seems to say. According to him, it was the market shutdown accompanied by the interruption of professional trading that allowed Bitcoin to continue to rise in value during the coronavirus pandemic.

The bulk of Bitcoin’s gains have come outside of regular trading hours for US stocks.

Excerpt from Jake Gordon’s Note on Bitcoin Earnings

Source: Bespoke Investment Group

According to him, the phenomenon remains difficult to explain but could perhaps be explained by the effect of a real “period of respite”. This is because when the market is closed, Bitcoin is not subject to the vagaries of equities and traditional economics. And if the coronavirus pandemic may seem far away, it is nevertheless clear that the phenomenon continues today.

Bespoke recently discovered that Bitcoin largely tends to rise on weekends when the stock market is closed, but from Monday to Friday its intraday trajectory is very different: it trades flat before the market opens, but decreases as soon as trading begins. Bitcoin has long been a favorite of weekend traders, who can often benefit from lower levels of liquidity to drive larger price swings. […] Still, the correlation with equities may not explain why the after-hours outperformance trend also existed when the market rallied over the past two years, Gordon says. One explanation is that the post-close strategy covers a longer timeframe, “meaning there is potential for more news/catalysts to factor in.”

Excerpt from Bloomberg article regarding the phenomenon of rising Bitcoin during market closes

However, should we stop trading?

While full-time trading can be bad for Bitcoin’s price because it makes the whole thing unstable and maybe even fragile, it would be catastrophic to stop everything. Indeed, the buying and selling of cryptocurrencies still represent the breath of life of the industry.

Likewise, professional trading might slow down, but retail trading would continue no matter what, and it is the latter that plays a real role in the success of crypto. It is therefore two actions on different scales that are combined here: that of members of the crypto sphere who hold the majority of the assets and that of large traders who lose considerable sums.

In the future, two contradictory hypotheses could be confirmed. With crypto getting closer and closer to traditional finance, it could be that professional trading is ramping up and Bitcoin is trading like any other stock on the stock exchange.

On the other hand, the heavy use of volatility and speculation being decried within the industry since the crypto crash. As the latter wishes to break away from its image of an unstable asset and focus more on its monetary aspect, it could be that trading is becoming less and less of a concern for members of the industry. It will therefore be necessary to choose between one and the other since the two seem difficult to reconcile.


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