{"id":433524,"date":"2022-04-18T16:03:00","date_gmt":"2022-04-18T13:03:00","guid":{"rendered":"https:\/\/en.buradabiliyorum.com\/is-asymmetric-information-driving-cryptos-wild-price-swings\/"},"modified":"2022-04-18T16:03:00","modified_gmt":"2022-04-18T13:03:00","slug":"is-asymmetric-information-driving-cryptos-wild-price-swings","status":"publish","type":"post","link":"https:\/\/buradabiliyorum.com\/en\/is-asymmetric-information-driving-cryptos-wild-price-swings\/","title":{"rendered":"# Is asymmetric information driving crypto\u2019s wild price swings?"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_85 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a381cf54dd6f\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #dd3333;color:#dd3333\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #dd3333;color:#dd3333\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a381cf54dd6f\" checked aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-1'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/buradabiliyorum.com\/en\/is-asymmetric-information-driving-cryptos-wild-price-swings\/#%E2%80%9D_Is_asymmetric_information_driving_cryptos_wild_price_swings_%E2%80%9C\" >&#8221; Is asymmetric information driving crypto\u2019s wild price swings? &#8220;<\/a><ul class='ez-toc-list-level-2' ><li class='ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/buradabiliyorum.com\/en\/is-asymmetric-information-driving-cryptos-wild-price-swings\/#New_distortions_from_institutional_investors\" >New distortions from institutional investors?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/buradabiliyorum.com\/en\/is-asymmetric-information-driving-cryptos-wild-price-swings\/#At_the_core_of_traditional_finance\" >At the core of traditional finance<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/buradabiliyorum.com\/en\/is-asymmetric-information-driving-cryptos-wild-price-swings\/#Is_Coinbase_leveling_the_playing_field\" >Is Coinbase leveling the playing field?\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/buradabiliyorum.com\/en\/is-asymmetric-information-driving-cryptos-wild-price-swings\/#Needed_more_adoption_trading_volume\" >Needed: more adoption, trading volume<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h1><span class=\"ez-toc-section\" id=\"%E2%80%9D_Is_asymmetric_information_driving_cryptos_wild_price_swings_%E2%80%9C\"><\/span>&#8221; Is asymmetric information driving crypto\u2019s wild price swings? &#8220;<span class=\"ez-toc-section-end\"><\/span><\/h1>\n<p><img decoding=\"async\" src=\"https:\/\/images.cointelegraph.com\/images\/840_aHR0cHM6Ly9zMy5jb2ludGVsZWdyYXBoLmNvbS91cGxvYWRzLzIwMjItMDQvMTRlNGViZDQtODU0ZS00OGRjLWJjNDItMDkzOTg1YzU2MTJhLmpwZw==.jpg\" \/><\/p>\n<div class=\"post-content\" data-v-2a0745c6>It has long been believed that investors possessing inside knowledge help drive cryptocurrencies\u2019 price volatility, and a number of academic papers have been published on this topic. This is why Coinbase\u2019s intention to regularly publish in advance<em> <\/em>a catalog of tokens being assessed for listing on its prominent trading platform is noteworthy.\u00a0<\/p>\n<p>Coinbase\u2019s plans, announced in an April 11 blog along with 50 crypto projects \u201cunder consideration\u201d for Q2 2022, could help tamp down the pervasive speculation that surrounds small-cap tokens. Meanwhile, this can help alleviate industry concerns about \u201cinformation asymmetry,\u201d which typically occurs when one party to a transaction \u2014 a seller, for instance \u2014 is much better informed than another transactional party, such as a buyer.<\/p>\n<p>Last week\u2019s pre-list, which included 45 ERC-20 tokens on the Ethereum blockchain network and five SPL tokens on the Solana network as well as future token lists, is meant to \u201cincrease transparency by providing as much information symmetry as possible,\u201d the United States\u2019s largest crypto exchange explained.<\/p>\n<p>Will it really smooth out the crypto-investor playing field, though? \u201cIt can be a step in the right direction,\u201d Lennart Ante, co-founder at Blockchain Research Lab gGmbH and author of a research paper on information asymmetry in Bitcoin (BTC) transactions, told Cointelegraph. \u201cIn theory, this reduces information asymmetry and, thus, the price effect at the time of the listing.\u201d<\/p>\n<p>\u201cMore transparency is always welcome, obviously,\u201d Daniele Bianchi, associate professor in finance at the School of Economics and Finance of Queen Mary University of London, who has published research on crypto price swings, told Cointelegraph. That said, \u201cinformation asymmetries and adverse selection are still pervasive in cryptocurrency markets,\u201d and that isn\u2019t likely to change anytime soon.\u00a0<\/p>\n<p>Indeed, a mere day after Coinbase\u2019s listing announcement, <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/twitter.com\/cobie\/status\/1513874972552355846\">reports<\/a> surfaced on Crypto <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/social-mediaa\/\" data-internallinksmanager029f6b8e52c=\"1\" title=\"Social Media\" target=\"_blank\" rel=\"noopener\">Twitter<\/a> that one crypto wallet holder, possibly an insider, probably had pre-knowledge of Coinbase\u2019s new listing candidates, and may have made a tidy profit trading on some of those tokens. According to crypto influencer Cobie:<\/p>\n<blockquote><p>\u201cFound an ETH address that bought hundreds of thousands of dollars of tokens exclusively featured in the Coinbase Asset Listing post about 24 hours before it was published, rofl.\u201d\u00a0<\/p><\/blockquote>\n<h2><span class=\"ez-toc-section\" id=\"New_distortions_from_institutional_investors\"><\/span>New distortions from institutional investors?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Be that as it may, Coinbase\u2019s announcement serves as a reminder that the industry continues to struggle with the problem of asymmetric, or unbalanced, information and it raises questions.\u00a0<\/p>\n<p>Are information asymmetries really driving huge price swings in cryptocurrencies, as commonly believed? If so, is this undermining investor confidence in the system? If something is amiss, what might help fix things? And, what about Coinbase\u2019s recent announcement, isn\u2019t this an encouraging move on the part of an acknowledged industry heavyweight?<\/p>\n<p>Information asymmetry is a real crypto sector problem, driven by relatively low market capitalization, a concentrated ownership structure and a highly fragmented and multi-platform market structure, said Bianchi. Moreover, it\u2019s no longer just \u201cwhales\u201d and crypto miners who may be manipulating markets, he told Cointelegraph:<\/p>\n<blockquote><p>\u201cThe investment landscape is changing and more institutional investors \u2014 either specialized or multiasset \u2014 are coming into the marketplace. In other words, there is a new type of sheriff in town with the potential to benefit from na\u00efve retail investors.\u201d<\/p><\/blockquote>\n<p>The low liquidity level of many crypto projects makes them vulnerable to price manipulation, added Bianchi. \u201cLiquidity is key here. Outside of the top 100 by market capitalization, a trade of a few million USD can easily generate significant price swings at the expense of retail traders who typically have poor market timing skills.\u201d<\/p>\n<p>Some others concur. \u201cThe cryptocurrency market is, in fact, the perfect environment to exploit asymmetric information,\u201d Raj Kapoor, founder of the India Blockchain Alliance, told Cointelegraph, given that \u201cit is not completely transparent and part of a fragmented ecosystem.\u201d Rather, it\u2019s a mix of web-based brokers, peer-to-peer exchanges and major exchanges that provide liquidity to their smaller counterparts, said Kapoor, adding:<\/p>\n<blockquote><p>\u201cThose who have the information and can time the market, make money and drive the prices. Inconsistent and non-aligned crypto exchange regulation fosters this environment.\u201d<\/p><\/blockquote>\n<p>\u201cThere is almost always a circle of people who have the information in advance and can or could act accordingly,\u201d added Ante. This includes events like exchange listings, regulatory changes or even tweets from influential people like Elon Musk.<\/p>\n<p>\u201cOne of the biggest asymmetries is that the anonymous developers know their own identities and intentions, but buyers don\u2019t,\u201d Douglas Horn, chief architect of Telos, a blockchain platform, told Cointelegraph.\u00a0<\/p>\n<p>\u201cAnother type is market manipulation by whales who know that their big sell-walls are just there to crush the price so they can end up acquiring more of a coin without any new investment, but the majority of investors do not. Both of these situations cause big swings in market value,\u201d said Horn.\u00a0<\/p>\n<p>But, is it really problematic? Cryptocurrencies are a small subset within a much larger legacy financial system, after all, where information imbalances have proliferated for many decades.<\/p>\n<p><em><strong>Recent:\u00a0<\/strong>First steps: Basic tips for getting started investing in DeFi<\/em><\/p>\n<h2><span class=\"ez-toc-section\" id=\"At_the_core_of_traditional_finance\"><\/span>At the core of traditional finance<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>\u201cInformation asymmetries are at the heart of financial markets,\u201d James Angel, associate professor at Georgetown University\u2019s McDonough School of Business, told Cointelegraph. There are \u201chuge asymmetries\u201d between product issuers and investors, brokers and clients, as well as in trading markets, he said, adding:<\/p>\n<blockquote><p>\u201cEquities have always been extremely volatile and always will be for a simple reason: Nobody knows what they are really worth because no one knows what the future holds.\u201d<\/p><\/blockquote>\n<p>The same <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/download-scripts-themes-apps\/\" data-internallinksmanager029f6b8e52c=\"9\" title=\"Download Scripts &amp; Themes &amp; Apps\" target=\"_blank\" rel=\"noopener\">app<\/a>lies to cryptocurrencies. In Angel\u2019s view, their mammoth price swings are a \u201cnatural artifact\u201d of the uncertainty over tokens\u2019 true value, which isn\u2019t so unusual given that we are in the middle of a technological revolution. Indeed, \u201cit feels just like 1999 all over again,\u201d he said, referencing the dot.com boom when tech-based equities grew at exponential rates.\u00a0<\/p>\n<p>Today, there are many new \u201cpromising entrants\u201d in the crypto space, Angel continued, and not all of them will succeed. \u201cTime will tell which of them are the next Google versus the next Pets.com. Given the lack of regulation, there are undoubtedly lots of hijinks going on as well.\u201d\u00a0<\/p>\n<p>According to Kapoor, information asymmetry remains a significant problem for the crypto industry. Many mature, centralized and traditional markets \u2014 like equities \u2014 are symmetrically aligned, he said. \u201cNot so trading in cryptocurrency.\u201d Crypto markets have a \u201chighly fragmented multiplatform structure; the problem is not going away anytime soon.\u201d<\/p>\n<p>Others suggest, however, that the cryptoverse with its distributed digital ledgers that are open for all to see and is less riddled with information asymmetries than traditional finance.\u00a0<\/p>\n<p>Yes, \u201cinformation asymmetries are an intrinsic part of markets for assets with uncertain value,\u201d and that includes many crypto projects, Emiliano Pagnotta, associate professor of finance at Singapore Management University, told Cointelegraph, but blockchain projects differ from traditional enterprises too:<\/p>\n<blockquote><p>\u201cA cryptocurrency like Bitcoin is not subject to asymmetric information about cash flows, managerial decisions, mergers, earnings or several essential variables affecting firms\u2019 securities.\u201d<\/p><\/blockquote>\n<p>Both Bitcoin and Ether (ETH) have evolved in a transparent open-source process too, Pagnotta added, with updates and innovations discussed openly months and sometimes years in advance.<\/p>\n<p>That said, weaknesses haven\u2019t been completely eliminated, and \u201cthere can still be significant asymmetric information related to external factors such as regulation. For example, Chinese officials had advanced knowledge of the decision to crack on all Bitcoin mining before the corresponding announcement in the first half of 2021.\u201d\u00a0<\/p>\n<p>That, presumably, would have provided officials or the government an opportunity to unload their BTC holdings before market prices plummeted. \u201cRegulatory uncertainty is probably the most critical barrier to investor confidence, in my view,\u201d said Pagnotta.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Is_Coinbase_leveling_the_playing_field\"><\/span>Is Coinbase leveling the playing field?\u00a0<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>What about Coinbase\u2019s announcement of 50 crypto projects that could be heading for a Q2 listing on its exchange: Is that a blow struck in the interests of transparency?\u00a0<\/p>\n<p>It was \u201ca step in the right direction,\u201d said Pagnotta, helping to even out information imbalances. Up to now, it\u2019s common for investors to open exchange accounts \u201cmerely to gain access to an unlisted token on their primary exchange,\u201d he said. This is cumbersome, time consuming and not very efficient.\u00a0<\/p>\n<p>\u201cFor the public at large this will not change the situation much,\u201d opined Bianchi. When a coin makes Coinbase\u2019s pre-list, algorithmic traders or market makers can still \u201cfront-run retail investors and take profits without necessarily waiting for the so-called \u2018Coinbase effect.\u2019\u201d More transparency in the listing process is desirable, of course, \u201cbut it does not solve the issue.\u201d<\/p>\n<p>As for the reports that someone, perhaps an employee, may have been trading in advance of the April 11 blog post, Horn said that there really isn\u2019t too much that can be done about actions like these. \u201cThe listings of big companies like Coinbase have always been excellent opportunities for insider trading because anonymous trading is easily accessible \u2014 making enforcement impossible.\u201d It\u2019s not an ideal situation, but it can&#8217;t be easily stopped \u201cso there\u2019s not much point in getting upset about it.\u201d<\/p>\n<p>Coinbase could do some small things. \u201cThey can possibly publicly commit to penalize\/fire any employee caught trading in advance of the publication list if they are not doing so yet,\u201d said Pagnotta, as well as restricting which assets are investable for employees and other things like that.\u00a0<\/p>\n<p>Would more regulation help? Basically, \u201csuch trading lies outside of the scope of regulatory agencies, in my view,\u201d Pagnotta said, noting that the United States definition of insider trading, Rule 10b-5 of the U.S. Securities Exchange Act of 1934, requires \u201cbuying or selling [of] a security,\u201d and at this point in time ERC-20 tokens \u201care not a registered security.\u201d In other words, U.S. insider trading rules may not apply.<\/p>\n<p><em><strong>Recent:\u00a0<\/strong>Top universities have added crypto to the curriculum<\/em><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Needed_more_adoption_trading_volume\"><\/span>Needed: more adoption, trading volume<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>All in all, the crypto sector may find it difficult to eliminate information asymmetry in the short run without losing the decentralized nature of cryptocurrency markets. More transparency, like that offered last week by Coinbase, is helpful, but they can only do so much.<\/p>\n<p>But, the longer-term outlook may be more positive \u201cwith more professional investors coming into the marketplace and regulators assuming closer oversight,\u201d Bianchi told Cointelegraph, adding:\u00a0<\/p>\n<blockquote><p>\u201cWe need more adoption, less ownership concentration and more volume trading to improve the price discovery process and market quality as a whole.\u201d\u00a0<\/p><\/blockquote>\n<p><template data-name=\"subscription_form\" data-type=\"markets_outlook\"><\/template><\/div>\n<p><script async src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<blockquote><p><strong><span style=\"color: #ff6600;\">If you liked the article, do not forget to share it with your friends. Follow us on\u00a0<span style=\"color: #ff0000;\"><a style=\"color: #ff0000;\" href=\"https:\/\/news.google.com\/publications\/CAAqBwgKMLG0nwswvr63Aw\" target=\"_blank\" rel=\"nofollow noopener noreferrer\">Google News<\/a><\/span>\u00a0too, click on the star and choose us from your favorites.<\/span><\/strong><\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\">For forums sites go to <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/forum.buradabiliyorum.com\/\" target=\"_blank\" rel=\"noopener\">Forum.BuradaBiliyorum.Com<\/a><\/span><\/strong>\n<\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\"><strong>If you want to read more <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/news\/\" data-internallinksmanager029f6b8e52c=\"2\" title=\"News\" target=\"_blank\" rel=\"noopener\">News<\/a> articles, you can visit our <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/en.buradabiliyorum.com\/general\/\" target=\"_blank\" rel=\"noopener\">General category.<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n<p><span style=\"color: black;\"><a style=\"color: #ff9900;\" href=\"https:\/\/cointelegraph.com\/news\/is-asymmetric-information-driving-crypto-s-wild-price-swings\" target=\"_blank\" rel=\"noopener\">Source<\/a><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>&#8221; Is asymmetric information driving crypto\u2019s wild price swings? &#8220; It has long been believed that investors possessing inside knowledge help drive cryptocurrencies\u2019 price volatility, and a number of academic papers have been published on this topic. This is why Coinbase\u2019s intention to regularly publish in advance a catalog of tokens being assessed for listing&#8230;<\/p>\n","protected":false},"author":1,"featured_media":433525,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"https:\/\/images.cointelegraph.com\/images\/1200_aHR0cHM6Ly9zMy5jb2ludGVsZWdyYXBoLmNvbS91cGxvYWRzLzIwMjItMDQvMTRlNGViZDQtODU0ZS00OGRjLWJjNDItMDkzOTg1YzU2MTJhLmpwZw==.jpg","fifu_image_alt":"","footnotes":""},"categories":[1],"tags":[74867,74862,74894,74956,74860,74877,75917,70934,71407],"class_list":["post-433524","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general","tag-altcoin","tag-bitcoin","tag-blockchain","tag-coinbase","tag-cryptocurrency-exchange","tag-decentralized-exchange","tag-exchanges","tag-regulation","tag-trading"],"_links":{"self":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/433524","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/comments?post=433524"}],"version-history":[{"count":0,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/433524\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media\/433525"}],"wp:attachment":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media?parent=433524"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/categories?post=433524"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/tags?post=433524"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}