Sunday, 18 November 2018

Professional Investors Are Spoiling Bitcoin's Party


1. I previously recommended selling bitcoin ahead of the introduction of derivatives, which holds today.

2. Professional investors will change the complexion of the bitcoin market in ways investors must understand.

3. The impact of professional traders in the market must be understood in order to successfully invest, I argue.

A recent talk about Goldman Sachs creating a cryptocurrency desk will have a meaningful impact on the price of bitcoin – and it might not be positive for long investors.

In my previous article of December 8, “Sell Bitcoin Ahead Of Futures Launch Says Algorithmic Expert," we discussed how the addition of bitcoin futures had the potential to be negative for long exposure.

The goal of this article, as is the goal of my approach, is to think like an algorithm thinks. It is a calm, mathematical approach that looks at all sides of issues. In today’s world of algorithmic investing, understanding what drives markets is of paramount importance – particularly as it relates to bitcoin, which is driven more by market momentum forces than fundamentals relative to other contracts.

In that article, I argued that the addition of futures was an unknown variable with the likelihood to negatively impact the price of bitcoin. The article received some critique from readers, many of whom I perceived as long bitcoin. There is nothing wrong with critique – the best trade rooms and algorithms are both built based on radical transparency and a search for truth. But getting emotional, "rooting" for an outcome and not looking at all sides of an issue, however, is not a strong trading or investment mindset.

In this article, I build upon the thesis that bitcoin derivatives – and more specifically the introduction of professionals to the bitcoin market -- might not be entirely positive for bitcoin long-only exposure.

Professional investors think bitcoin is a “crowded trade”

What we are seeing with Goldman Sachs getting into the bitcoin market might not be as much driven by Goldman’s respect for bitcoin individually, but rather how they look at the market from an algorithmic standpoint.

By Mark H.Melin
Legal disclaimer: The insight, recommendations and analysis presented here are based on corporate filings, current events, interviews, corporate press releases, and what we've learned as financial journalists. They are presented for the purposes of general information only. These may contain errors and we make no promises as to the accuracy or usefulness of the information we present. You should not make any investment decision based solely on what you read here.

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