The Power of the Media in the Crypto Market
Francesco Dell'Agata, October 8th, 2018
Over the course of 2017, bitcoin increased from less than $1000 to $20,000. Specifically, over the course of about 3.5 weeks from November to December, bitcoin increased parabolically. There are many speculative factors that we can take into consideration to understand why this rise occurred. Just take a look at Google Trends, tracking bitcoin interest over time from January 2009 to September 2018: bitcoin. By observing the search trends on Google and mapping these against the bitcoin price, it is clear that as interest rose online via an increase in search results, so did the price.
This article will identify some factors which played a major role in the astonishing rise in the bitcoin price. One of these was the influence of social media and the world’s media that had an incredible effect on bitcoin. Due to the heavily bullish price predictions throughout 2017 stating “$10,000 bitcoin by end of 2017”, fuelled a large influx of capital from experienced investors and newbie investors alike. In the end, the bitcoin achieved the unthinkable and left people baffled – once the $10,000 mark was crossed, it didn’t take long for bitcoin to double to $20,000. A number of high-profile people in the cryptocurrency industry did and continue to, influence people’s views, such as John McAfee via his Twitter account. What has to be reiterated, is that the price rise occurred not only for bitcoin, but also for the entire cryptocurrency market. Likewise, the same is true in the opposite direction when the price has been plummeting. It is not uncommon to come across articles on a daily basis that state “bitcoin is dead” – this goes to show how much the crypto market is susceptible to human psychology.
The internet and the media have greatly influenced by many newspaper articles, websites and people who claimed to understand what blockchain is and how bitcoin works – yet, all their articles resulted in people FOMO’ing (fear of missing out) into investing in bitcoin as the price kept on rising at the end of 2017. Inevitably, this resulted in a large number of people buying even at the price peak, which resulted them in selling their holdings at a loss – of course, some people made this decision due to their psychological state after seeing declines in their holdings of approximately 60-70 per cent throughout 2018. The crypto market is not for the faint of heart or inexperienced investors with zero knowledge of blockchain and cryptocurrencies.
A financial market including cryptocurrencies, are subject to two key factors: psychological barriers and market cycles. No matter what market we are talking about, the crypto market is subject to people’s perception and the way they think can affect the way the whole market behaves – especially if the market in question is a small and nascent market as the cryptocurrency market. Hence, the fear of missing out has been a great driver for retail investors.
One final note to take into account is an interesting national report conducted by a London based firm called IW Capital. The report states that 38 per cent (nearly 20 million people in Britain), do not yet understand what cryptocurrencies are at all and a third of this number (almost 17.5 million people) think that the cryptocurrency market is in a bubble and will burst sooner or later. This report reveals a shocking truth, but also an interesting one. We realise that due to not many people understanding the crypto market or bitcoin, it is evident that knowledge curve amongst the British and world population will only increase over time. More to follow in future posts.