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What's a Reactive Crypto Market? Binance Log-in Issues A Perfect Case Study

Author: Ivan Delgado Apr 12, 2018 at 00:32

Wednesday's login issues in Binance, while a temporary technical glitch that looks set to have no further ramification, demonstrates how fragile the crypto market has become to any intraday market noise that may have a short-term impact on sentiment. The type of selling action seen on Wednesday is very reflective of the current state of market dynamics, dominated by 'reactive trading'. 

What's Reactive Trading?

Reactive trading is the type of trading approach that is impulsive in nature, mainly initiated from either fear of missing out on a potential move or by the same token, liquidating a position on the first sign of trouble ahead, even if not fundamentally justified. In this article, we will focus on the latter, and why I believe the crypto market needs to change its psyche and gear itself in a completely different frequency of dynamics to find its footing for a sustainable recovery. 

Let's get to the core of the matter. Reactive trading originates from the underlying issue of a lack of confidence coupled with over-cautiousness. When both are combined, intraday traders, which tend to drive the majority of flows amid the 'stand-by'' by the institutional capital, are much more inclined to be in and out of the market for quick profits. They are aware that the market is in a cyclical bear phase and that hence a self-fulfilling sense of prudence is necessary to cash in profits and limit losses. 

The Sad State of Affairs When in a Reactive Trading Environment

As Adam Button, Chief Editor at ForexLive, eloquently puts it: "If you can't hodl through a technical glitch, you can't hodl for long." Despite Binance CEO CZ was quick to provide reassurance that it was a database bug with a quick fix, as illustrated below, the market had already started to spread rumors of a hack, and as a consequence, the market psyche had already shifted into full 'reactive trading' mode, with impulsive selling the norm. 

 

What Signs Will Suggest a Transition from Reactive to Proactive Crypto Markets?

  • When we start to see tentative actions that the market is guided by a forward sense based on the fundamentals of the technology, improvements in the ecosystem (more regulations, custodial solutions, scalability).
  • When the trader starts dismissing the intraday noise such as the Binance example from this Wednesday, to instead have a clear razor-focus on value perception.
  • When positive news stories are over-played and market movements exaggerated as the perception shifts into fear of missing out. 
  • When the same intraday traders that would sell at the top after a quick move decide to hold onto their profits in anticipation of catching runners.
  • When the volume starts rising consistently across the main exchanges rather than drying up after a few rising days.

When this type of behavior starts to flourish again, the metamorphosis from reactive to proactive markets will materialize. 

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