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Bitcoin Trading Is Actually Far Less ‘Noisy’ Than Traditional Markets

[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]

Bitcoin (BTC), the world’s first and largest cryptocurrency, made its debut approximately one decade ago. Since its creation, an increasing number of traditional market traders and experts have found their way into the crypto space in one form or another. Financial analyst, author, trader and creator of the widely used Bollinger Bands charting indicator, John Bollinger, became involved in the industry roughly three years ago, seeing opportunities to trade these digital assets, which have less “noise” than traditional market products.

“In the beginning, I was actually early in the game,” Bollinger told me in an August 21 interview. “A couple of friends of mine were very early miners and I watched with interest but didn’t get involved,” he said. “Then, about three years ago, I was watching the price action of bitcoin and it was behaving very much like stocks used to do a very very long time ago before we got all of this arbitrage and program trading and algorithmic trading,” he added. “I thought […] that would make bitcoin a pretty ideal vehicle for trading with technical analysis tools.”

Highly common in the cryptocurrency trading community, technical analysis essentially involves gathering price data from charts. Traders and analysts often use sites such as TradingView.com to evaluate a visual representation of price action over various time periods, coming up with hypotheses on what price levels might be significant.

Charting platforms also often include a bevy of different available indicators which express complex information in simpler visual formats. Common indicators include moving averages, relative strength index (RSI) and Bollinger Bands, an indicator Bollinger himself created in the 1980’s after studying traditional markets and older indicators.

Bitcoin Trading Acts Like Old School Traditional Markets

“I tested those ideas and it turns out that’s entirely correct,” Bollinger said, regarding his theory of bitcoin acting in the same manner stocks did many years ago, as well as it being a great asset for “technical analysis tools” application. “That’s true for all of the cryptocurrencies,” he added. “That’s what got me interested, because it was a vehicle that came to behave very well in relation to the classic technical analysis rules.”

At the time of publication, bitcoin sits with a price tag of about $10,100 per BTC, with more than $960 million in 24-hour trading volume, according to Messari.io’s OnChainFX page. The total cryptocurrency market cap holds just over $250 billion in total value for all assets.

“I started trading it and I did quite well with it,” Bollinger said, referring to his crypto trading beginnings multiple years ago. Bollinger mentioned his view that traditional markets are now influenced heavily “by algorithmic trading.” He noted ETFs as an example, “which have a tendency to weld the price action of many stocks together.”

“I wanted to see if there were still markets out there that behaved in the old way,” Bollinger said. “Indeed there are, and bitcoin is one.”

Crypto Trading Has Changed, But Only Slightly

Since bitcoin’s 2017 price run from below $1,000, to almost $20,000, many new players have entered the market with big money in hand. Traditional financial powerhouses have entered the space as well, such as the Chicago Mercantile exchange offering its cash-settled bitcoin futures trading, although, a bitcoin ETF has still eluded regulatory approval.

Bollinger, however, said he thinks crypto markets still act similar to the pre-algorithmic traditional markets of old. “I don’t think it’s changed that much,” he said, referring to cryptocurrencies reacting to traditional charting now, compared to when he got into the crypto game multiple years ago. “I haven’t seen anything really, they still seem to be trading very well,” he said, referring to crypto assets still reacting to classic charting. “Maybe they’re a little bit noisier,” he added.

“Certainly the list of vehicles that I would consider to be tradable has diminished over the past year and a half or so as some of the speculative fever has been bled out of the market, but for the main line cryptocurrencies, the ones that are still very active where there’s a great deal of trader interest – I think that they’re excellent technical analysis vehicles.”

In 2019, most altcoins (all crypto assets aside from bitcoin) have not recovered from the price downslide they incurred in 2018. In contrast, while many have continued to struggle, bitcoin has taken center stage in its exuberant price recovery.

Bollinger did note that the introduction of mainstream type trading products, like CME’s cash-settled bitcoin futures, have changed bitcoin trading slightly. “I don’t know if its affected its overall price level, but I think its made the trading a little bit noisier, and that’s what we would expect,” he said.

“That’s what we saw with the introduction of stock index futures in the stock market and in many other markets where futures were introduced into markets that previously didn’t have them. The futures activity, hedging activity and stuff like that creates what we call non-directional noise. It’s noise that’s not based on supply and demand and trends but noise that’s based on the transaction mechanics of trading, and I think we’re starting to see that bleed into some of the cryptocurrencies, but it’s nowhere near as serious a problem as it is, say, for U.S. equities.”

Bitcoin Is Bottoming, Alts May Still Slide Further

Between February and June 2019, bitcoin’s price rocketed from $3,400 all the way up to nearly $14,000, according to TradingView.com’s CoinBase BTC chart. Since June, the asset has bounced between $13,900 and $9,000.

“I think bitcoin and the other cryptocurrencies are working on trying to forge a short-term tradable bottom here that could have intermediate-term implications,” Bollinger said, although he added, “They’re not done with it yet.”

“I like to look at not just bitcoin but also litecoin and ether, and some of the other more active coins. I feel that that sort of analysis of four or five coins at the same time, the sort of thing that was suggested by Bill Ohama many years ago for the futures market, is very very helpful.”

Bollinger mentioned a loose range “some place between $10,000 and $9,000” in which “bitcoin is trying to find a low right now.” He also added, “The other cryptocurrencies are still making new lows so I don’t think that the process is completed yet.”

Noting specifics, Bollinger said he would “look at” prices for litecoin (LTC), ethereum (ETH), Ripple’s XRP, as well as “some of the other liquid coins,” adding, “if they show signs of breaking the downtrend and trying to turn higher, and that’s confirmed by bitcoin, I think that would be an intermediate-term positive for the entire crypto sector.”

Disclaimer: I actively trade cryptocurrencies, as well as hold a small amount of BTC, ETH, LTC, XMR, NEO, ZEC, BEAM, BCH and various insignificant other altcoin positions.

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