Sailing against the wind

The wind does not decide which direction you head in
Anyone who followed the news these past few weeks could reach just one conclusion about bitcoin. The American crypto bill stalled in the Senate, the war with Iran flared up again, and oil pushed back well above a hundred dollars. There was no reason at all for optimism. And the price rose anyway. Into the wind. And to understand that the last place to look is the newspaper.

The rundown
Let's run through the headlines of the past few weeks. On September 15 the US Senate voted on the CLARITY Act, the law that was finally meant to settle who supervises crypto in the United States. The vote was 49 to 50, eleven short of the 60 required. Broad crypto legislation is now almost certainly off the table for this year. Meanwhile the war between America and Iran escalated once more. The Strait of Hormuz is all but closed, a barrel of Brent costs well over a hundred dollars, and fuel prices in America are climbing fast. Nor is there an end in sight in Ukraine. Expensive oil keeps inflation stubborn. So, for the rest of the year the market expects rate rises rather than cuts, and the interest on US government bonds is going up. For bitcoin that has always been the hardest headwind. Bitcoin pays no interest, so the more a Treasury yields, the more it costs you to wait. And American policy is still erratic enough that a single post on Truth Social can overtake a careful market analysis by the afternoon. 

None of these developments is good for a risk asset. Together they are exactly the climate in which you expect a decline.

And yet
Bitcoin did the opposite. After months of trading sideways the price moved up, with last Monday as the standout: seven percent in twelve hours. In precisely the weeks when the news flow was at its gloomiest.

The explanations have since arrived. One person sees a technical breakout, another points to investors hedging against a weaker dollar, a third to large players who simply kept buying. It all sounds plausible. It also has one thing in common: it came afterward. Nobody who read the Senate result on September 15 wrote that same afternoon that bitcoin was now going to rise.

Wind and course
I am not a sailor, but I have always liked the theory: a sailboat can sail against the wind by sailing at an angle and zigzagging its way ahead. So, the wind does not decide which direction you head in. Where the boat ends up depends on the current, the keel, the rudder and the hands-on board. The same goes for bitcoin. The news is the wind: you feel it, you hear it and everyone talks about it. But the price is set by other forces.

With bitcoin those are forces you would not find in a headline. A market that never closes, with millions of participants around the world, each with their own horizon and their own reason to buy or sell. A fixed supply that no central party can adjust. Buyers who think in years and pay little attention to a vote in Washington. How those forces line up at any given moment cannot be mapped out in advance. Anyone who tries is drawing the line after the fact. 

That such buyers exist is more than an impression. This spring the American asset manager Bitwise spoke with fifteen large institutional investors, ranging from university endowments to sovereign wealth funds. While the crypto market roughly halved between October and April, not one of them reduced its position. Asked what would make them sell, none of them named the price. Fifteen conversations say little about the market, and Bitwise, which sells crypto funds, has an interest in this picture. But it fits what the past few weeks showed.

The other way around
It is tempting to carry the thought further. If bitcoin rises without a single piece of good news, what happens when the wind turns? When the war ends, oil falls back and the CLARITY Act passes after all?

The answer seems obvious, and that is exactly why it is a trap. If you have just established that bitcoin pays little attention to bad news, you cannot claim a paragraph later that good news pushes the price up predictably. A tailwind can coincide with a rise, but just as easily with a fall, because part of the market has long since run ahead of it or uses the moment to take profit. The only thing the past few weeks prove is that the link between news and price is far looser than most commentary would have you believe.

If you see bitcoin as part of your wealth, that is where the real lesson sits. A position you can only hold while the news is good stands or falls with the news. And the news, as the past few weeks showed, predicts nothing at all.