Finimize - 📉 Bitcoin got bitten

What’s going on here?

Reports showed that China is preparing a rescue mission to bring a much-needed $300 billion back onto its shores.

What does this mean?

The Chinese economy has been wedged in place for the last couple of years, and so far, the government’s reacted with the financial equivalent of a slight push on the backside. But China’s stock market has already fallen another 7% this month alone. So now, it’s time to hand out a hearty kick: the government’s reportedly considering raiding state companies’ offshore accounts, a bounty of roughly $300 billion that could be funneled straight into the economy. But put that into perspective: when the US and Europe had to stabilize their own economies, they were spending closer to the $1 trillion mark.

Why should I care?

For markets: Blame the snowball effect.

China’s problems could have been exacerbated by the use of a complex investment called “snowballs”. Here’s how they work: brokers take out options on a stock market index, trades that are designed to do better than the actual index itself. Investors buy the snowball products, pocketing a profit if the stock market stays within a pre-set range. In theory, the brokers make enough cash by beating the index to pay investors and make money doing it. Problem is, if the index dips below the set range, the snowball automatically stops and brokers must sell their options – and that sell-off sends the market even lower.

The bigger picture: Fear is in the air.

Buffett said to be greedy when others are fearful, and fearful when others are greedy. Well, investors sure are fearful about China: the country’s MSCI index is lower than when it started over three decades ago, and Chinese stocks are about as cheap as they ever have been relative to the US. But if you make like Buffett, be sure you handle the country’s woes getting worse before they get better.

What’s going on here?

The long-awaited approval of bitcoin spot exchange-traded funds (ETFs) didn’t play out as planned, with bitcoin slipping 20% since trading started.

What does this mean?

Crypto’s known as an investing bad boy, full of promise and well-intentioned anarchy, just a little too risqué to bring home. But the recent approval of bitcoin spot ETFs – the “spot” means the fund owns the actual asset – was expected to turn bitcoin into a much more responsible suitor. So far, though, bitcoin has actually dropped 20% since the ETFs’ launch. Mind you, that dip has been made worse by the US dollar’s sudden strength and some big one-off transactions. Plus, it’s not the first time bitcoin’s taken a turn after a major product launch. So there could be a nice guy in there, still: investors’ anticipation was likely already built into bitcoin’s 160% uptick from last year, so the market might just be taking a minute to process the shift.

Why should I care?

For markets: Rumor has it.

Many successful traders believe that by the time a trend is grabbing headlines, it’s already reached peak popularity. Makes sense: if enough investors have bought in to justify media attention, there will be limited prospective buyers still on the sidelines. No wonder, then, that an investment’s price often plateaus or slides after the initial furor. That’s why traders talk about buying the rumor and selling the news: if you’re sharp enough to spot emerging trends, the tactic should see you cash in from the momentum before it dissipates.

The bigger picture: Hodl round.

Crypto investors are usually in it for the long haul. They don’t just want short-term diversification: they believe in a bonafide future for decentralized financial systems. Regulation and more mainstream appeal only bode well for that ambition, so the case for “holding on for dear life” is arguably stronger than ever – if you can handle some whiplash along the way, that is.