Bitcoin and Ethereum tumble after renewed fears of regulatory crackdown

My experience with race-calling journalism is the reasons are often useless.

Couple years ago, I was on an exotic derivatives trading team. We purchased a portfolio of correlation trades from a French bank. (We thought we could unwind their portfolio for more than what we paid plus expected losses.)

Correlation trades are complex structures designed to profit from the correlation of two assets. For example, if you buy correlation on Apple and Microsoft, and both stocks go up or down, you make money. If one goes up far more than the other, you make less money. If one goes up and one goes down, you lose money. (Vastly oversimplifying.)

Just as with any market phenomenon, buying correlation itself drives correlation. (In the same way buying an asset pushes up its "price" a bit.) Conversely, unwinding a correlation trade drives anti-correlation.

I handed what I thought was a simple unwinding to a junior colleague. They proceeded to fuck it up. Anti-correlation in the system spiked, we lost some money and Mike was temporarily switched to bagel duty. Few moments later, we start seeing CNBC articles about Iranian military activity in the Gulf causing Brent and WTI to diverge, why this company is outperforming that company, and even a political article commending a small Central European country for outperforming a neighbor. The price movements reported were correct, but the reads were crap. Went well with my whitefish salad bagel.

In other words, further out futures dates are trading higher, so short investors in bitcoin are making money by rolling forward their short contracts. If long players were "trying to trap the short futures traders" they're definitely not succeeding.

I think two forces are at work here. First is that a lot of people who held on the way up realize finally a lot of their savings are tied up in a super volatile asset. As they see how much of their wealth can be wiped away in day, they're moving some amount of their savings out. (Now to have gotten to here in the first place, these long term holders are not intrinsically against risk since mathematical volatility equal / higher in the past; they just don't like this volatility when half their wealth is in it!)

Second is that people are still finding out about cryptocurrency. Crypto represents still less than 1% of the total real asset holdings of the world, so this would drive the price up. But this process is slow moving.

You'll notice that this is true of all race-calling journalism.

"The market was down on news that the Fed ..."

"China's announcement caused the market to ..."

"Iron ore prices rose again after production figures from BHP and Rio Tinto showed ..."

They're not performing exact science. They're hitting the daily quota and moving on. Something that makes for a good, plausible story is usually the limit of what you'll get from a journo in a hurry.

Interestingly, thrash and volatility provide stability (and profit) to the entities that take a cut of every transaction with a transaction cost. Think about brokers of any sort (real estate, stocks, insurance); they do not care whether the price momentums are going up or down, only that they can extract the maximum "equity" out of each and every transaction. Since fear-based selling (or fear-based buying by folks with fear of "losing out" on the next big thing) tends to increase overall thrash and volatility (and thus overall volume of selling), it is kind of the perfect scheme for them.

News and momentum of any sort can be exploited by insiders with information.

Normally, in commodities world, players who are on the other side of speculators are real producers or consumers locking into some price which suits them. Think airlines buying a lot of oil futures at suitable price to know what they will pay for fuel next quarter. Or farmers selling their future crop.

In BTC world, no such players exist.

They don't. I imagine it's mostly 'bitter coiners' who didn't buy in when the price was low and who are happy to see any drop because it lessens the amount they feel they lost out by (and I say this as a bitter coiner myself who could have mined bitcoin back when it was possible on a typical desktop but decided it wasn't worth the hassle).

I imagine this drop is caused by people who bought in early last year, saw the price drop from $19,000 to $15,000 and then think "I'm happy to lock in 1,500% gains" and sold, causing others to think "hmmm, the price is dropping, I'm happy to lock in 1,400% gains" and selling, and so on all the way down to the current $10,000, and it will likely keep dropping until you run out of people looking to lock in at least some of the gains from last year. That's when you'll get a whole bunch of people thinking "wow the price of bitcoin is low right now, time to buy, buy, buy".

What would happen to me if I algorithmically pumped and dumped in the USA and was found guilty of it? Some community service or hard jail time?

Them not being directly controlled by governments doesn't mean that they exist in a vacuum. At the end of the day, it's people creating/buying/selling them, so obviously they're affected by: governments, natural disasters, wars, ...

Bitcoin will survive for the simple fact that as long as something somewhere is illegal, Bitcoin will have value.

This has so many meanings that you can be both right and wrong at the same time.

Because many people that hold it bought it together with BTC as speculation and decided to sell simultaneously

I hope nobody's bet the farm on this stuff.