A quick 3min read about today's crypto news!
Trading tokens can be nerve-wracking stuff, but sometimes numeric landmarks can provide moments of levity – particularly for the mathematically minded.
Recent bitcoin (BTC) and ethereum (ETH) price markers have provided a source of mirth for the Tesla chief Elon Musk, in particular. Despite being one of the world’s sharpest minds, Musk’s oddball sense of humor is well-known – and he has shown a keenness for the internet funny number 69 (shorthand for a sex act) and the cannabis community’s favorite number: 420.
Last month saw much of the same.
But last week, a prominent trader, Brent Donnelly of Spectra Markets, pointed out that numbers like 420 and 69 are not exactly flukes – and noted that trader behavior can often skew figures toward certain numerical values.
He wrote in a newsletter:
“In bitcoin, like in every other market, the market loves to leave orders on the round numbers. This is because human beings are not altogether rational. We exhibit all sorts of predictable human bias, including round number bias.”
Donnelly illustrated his point by giving the example of marathon runners, many of whom strive to break four hours. They would consider, he stated, a few seconds over the 4h point to be a failure, but would celebrate 3h 59 as a major victory.
But he claimed that “a novel and also irrational phenomenon” occurs “in bitcoin and meme stocks” whereby “traders find particular numbers funny and place orders at those levels in order to screenshot and flex” on platforms such as Discord.
As such, the “numbers 69 and 420 have become standalone memes at this point.”
Donnelly claimed that transaction data from the Gemini exchange proved his point about the round number bias, as it indicated that BTC highs and lows commonly feature round numbers, and numbers ending in 0 or 50 are popular.
“It is much more likely for a high or low in bitcoin to fall on a round number. For example, 65,010 is more likely to be a high or low than 65,008 or 65,012… While 65,050 is much more likely to be a high or low than those other levels.”
This kind of bias, he added, was not unique to BTC traders – and could even be noted in “heavily institutional markets” like FX that “show this sort of predictable, non-random, lumpy distribution.”
And Donnelly even suggested that smart traders could take “takeaways” from this behavior if they “know where the uneven parts of the distribution lie.”
“If you leave an order to buy bitcoin at, say USD 47,301, you are statistically more likely to get filled than the person with an order at USD 47,300 or USD 47,299 because the majority of buy orders will be on the round number at USD 47,300.”
He also advised:
“If you are leaving stop-loss orders, always leave them on the correct side of the round or meme number. Sell stops should be below 00 and buy stops should be above. Anyone leaving a bitcoin sell order at USD 69,501 this week probably doesn’t know what they are doing. On the other hand, the ones that sold at USD 68.998 are probably expert traders that understand markets, memes and crowd psychology.”
Donnelly remarked that some recent news showed a 420-69 bias that seemed unlikely to be mere coincidence. He noted of the crypto exchange FTX’s recent announcement that it had raided USD 420m in funding from 69 investors had drawn The Onion-like headlines from serious news outlets, explaining:
“[This] pretty much confirms now that we live in a simulation created by a futuristic civilization of twisted, genius, dark comedy-loving 11-year-olds.”
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