Information and the Cryptocurrency prices: Part 1
Let’s begin my series on information in the cryptocurrency world by a bold statement:
Cryptocurrency prices are based purely on speculation. Period. Period?
Whereas some debate that prices of any good or raw material is also based on speculation, the phenomenon of cryptocurrencies is much more vulnerable to speculation and information.
Why is that so? Growing popularity of cryptocurrencies seems to increase price volatility. But let’s think about it this way by comparing to raw materials: Gold exists physically. You can make a nice ring or a bracelet out of it. It has its predetermined price market has established over the course of many years, mostly based on its usage. In case of cryptocurrencies, it’s easy to believe the price came from the thin air. And somewhat I can agree with that. Based on Bitcoin we can notice the network has to be constantly maintained. Cost of electricity and technology to do so is born by the miners. In nature the cost of actual gold mining (or mining of any other raw material) is similar. But there’s one slight difference: For Bitcoin, the cost of network maintenance is not expressed in Bitcoin price itself, but in transaction fees.
Thus, actual prices of most cryptocurrencies are based on speculations. By actual price, I define the cryptocurrency value with the maintenance cost subtracted. When this cost is compared to prices of most popular cryptocurrencies (e.g. Bitcoin, Ethereum or even Dogecoin…) the speculated value is overwhelmingly bigger than the cost. Especially since the values of cryptocurrencies are misbehaving like crazy, while the costs rise in a more predictable manner.
What are the implications of the fact that crypto prices are the most susceptible to speculations?
Information. Matters.
The news you read, the statements ICOs publish, the regulations governments issue. That’s probably obvious that such information shapes the trend of cryptocurrency prices. Unfortunately, there’s one shitty thing related to information that is common for crypto markets.
Fake news, rumors or misinterpreted information are easy to form and easy to believe — misinformation shapes the markets to a massive extent. Price may be accidentally pumped through false information, as such was the case with IOTA. Unfortunately, it also works the other way — investors are likely to lose money due to fake information that may gain momentum and spread virally. And we’re talking about large drops or gains here, as such is the nature of the cryptocurrency market as we know it.
To be honest, that makes me angry. There’s plenty of coins backed by the state-of-the-art technology, well-organized development teams… but may lose their value because the ‘influencer’ of the crypto world says the coin’s a scam. Whereas actuals scams are being pumped. If you are aware of John McAfee’s action to promote valuable ICOs, then you should probably know what I’m talking about.
If not, let me quickly recap what has been happening.
https://twitter.com/officialmcafee/status/947503819625201664
Some time ago John McAfee announced he will promote valuable ICOs on a daily basis. That seems like a great idea right? Someone who knows the market will help a whole variety of projects gains the attention they need! Well, reality check. Tokens were pumped and dumped to a massive extent. A large part of the community has called McAfee a scammer who has a personal interest in promoting those coins. Someone has uploaded a screenshot of the conversation with McAfee who’s deliberately offering to promote any ICO if the price is right. McAfee denied those claims and said his Twitter’s been hacked.
And who’s right? God knows. But one thing is certain — prices are bouncing like crazy. And it’s not the only case! If we take a closer look at the list of crypto millionaires we can notice its constant changes. The list changes on a daily basis. All of this is a really bad thing for the cryptocurrency community because the lack of trust and spread of fake information can be easily noticed. It’s so easy to get scammed on the crypto market. In the end, no one really knows if accusations are true or false until too many people lose their money. It’s also so easy for new investors (and their number is growing due to the popularity of cryptocurrencies) to believe in fake news and be blinded by the promises of endless money (fiat money, to be more ironic).
No one really knows who’s right or who’s wrong. Which news outlet writes about actual events. Seriously, that pisses me off. Lack of honest discussion on certain topics in the crypto world is discouraging from believing in the true potential of those projects which should gain the most attention.
When I was a writer for Dowbit, one of the cryptocurrency news portals, I’ve noticed so badly that it’s really hard to distinguish which information is true or false. The research to make sure that I’m not sharing a fake information could take hours. And in few instances when publishing the article I still wasn’t fully sure whether I’m not sharing another fake story.
Some time ago, my close friend Jędrzej gave a presentation on how to protect yourself (and your money!) from misinformation. I must admit that his speech has inspired me to spread the word and promote comprehensive research before any decision is made. Crypto world needs more knowledge on how to value information, not scammers.
In this series of articles about information and their relevance in cryptocurrency market, I want to share the best practices to validate the information you hear. I will share techniques, case studies, my experiences in order to get as closest to the truth as possible.
In the next article, I’ll present a list of fake and true events that affected the price of various cryptocurrencies and my thoughts on them. Stay tuned!
