The crypto world is constantly affected by global news that happens all the time. We saw the market reaction when it was announced that Bitcoin funds would be accepted in the United States and Hong Kong, as well as Ethereum funds. We also saw how the market reacted to the current aggression between the Zionist entity and Iran, in addition to the severe market volatility resulting from the US elections. Based on all of the above, there is a very popular trading strategy recently, which is buy the rumor sell the news. Today we will talk about it, so let’s find out more!
In this article
What is the strategy of buying the rumor and selling the news?
Crypto investment funds
2024 US Election
US interest, buying the rumor and selling the news
Does news control prices?
When is good news effective?
How to trade by buying the rumor and selling the news?
What is the strategy of buying the rumor and selling the news?
It is well known that news affects the world of crypto strongly, but why? This is because crypto markets, like other financial markets, are speculative markets. This means that they always look to the future because they bet on emerging technology and its strength in the future. Therefore, there is a very strong interest in the future and its stability. The more stable the future and the more stable the predictions, the more this is evidence of the opportunity for the growth of emerging technology such as crypto, and thus the possibility of a rise is strong. However, there is a fixed rule in the world of investment, which is to buy the rumor and sell the news, and this rule comes from the point we talked about just now. Since everyone is looking to the future and preparing for it, traders are therefore racing to make decisions that benefit their deals.
This means, for example, that if everyone expects a violent interest rate hike in 2022, investors will not wait until the interest rate is raised to 5% and then sell their currencies, but will sell these currencies immediately after the news of the interest rate hike in 2022 is announced, and this is what actually happened. The market bottom was formed in December 2022, even though the interest rate hike continued until the beginning of 2024.
On the other hand, the market has been on a continuous rise since the Federal Reserve started to fix interest rates and announced its intention to reduce them in the future. This is an example of selling the news and buying the rumor because traders here are making a forward-looking decision.
Always remember that if everyone expects the same thing to happen in the future, the whales will try to take advantage of this and control the markets. This is because there is always a battle in the markets to capture liquidity and make the most possible profits.
Crypto investment funds
If you look at the chart above you will notice an example of buying the rumor and selling the news. Here we see that in June 2023 the price of Bitcoin and cryptocurrencies started to fall. But at this price BlackRock announced its intention to launch Bitcoin funds and a few weeks later it announced its intention to launch Ethereum funds as well. From the announcement until the date of the launch of the Bitcoin funds in 2024 in January the price has been steadily rising until it reached $49,000.
But in the week of acceptance, there was a violent drop of more than 20% to $38,000 and formed the bottom. But then the price started to rise again until it reached $73,000 before correction. Ethereum also reached above $4,000 before correction. After the acceptance of Ethereum funds, there was also a violent drop of more than 40% approximately.
In this example, we see how the market bought the rumor that the SEC was seeking to admit the funds and then sold the news of the admission. But was this on a long-term time frame? In fact, this strategy is more suitable for medium-term and short-term time frames.
This is because at the time of the announcement of the launch of the funds, the price of Bitcoin was approximately $25,000 and at the time of accepting the funds, the price of Bitcoin was $44,000. Currently, the price of Bitcoin is $70,000 and the lowest price it reached in the previous period was $49,000 in August. This means that the long-term trend was upward after the news. But in the short-term framework, immediately after the announcement of the experience and for two weeks, a very violent correction occurred, more than 20%, as shown in the image above.
2024 US Election
The most famous example of the buy the rumor and sell the news strategy in the crypto world today is the 2024 US elections. The crypto market, along with the financial markets, is betting on Trump winning the elections because Trump is a friend of crypto in the White House. As a result, there is a current rise in the market, and the price of Bitcoin has risen from below $60,000 to exceed $70,000 in the previous period. This recovery was a result of traders anticipating Trump’s victory, and thus they bought the rumor here, which is Trump’s victory. Most likely, the market will undergo a price correction, even if temporary, after the result is announced, even if Trump, who is considered a friend of crypto, wins.
US interest, buying the rumor and selling the news
Financial markets rallied in August and September as traders anticipated that the Fed would cut rates. This happened after the September cut and we are now anticipating another cut in November. But notice how currency rates have already started to rise sharply, even though the market expects a cut of up to 3% by the end of 2025. In reality, the market may start to collapse at the end of 2025. This is due to the strategy of buying the rumor and selling the news. Since the market is forward-looking, traders seek to race and profit from the rate cut before it even fully occurs. If you wait for interest rates to fall below 3.5%, for example, it will be too late.
Remember that the more bullish the market is, the more motivated traders are to out-invest each other in making decisions. Therefore, each trader will expect that the whole market will go up in the coming period and therefore will take precautions and sell at a time when others do not expect it. But everyone will also do this to make profits and that is why the decline always occurs when the news is confirmed.
Does news control prices?
Most of the news we hear has the main purpose of controlling prices and playing with investors’ emotions. This is done by whales funding large news organizations so that they always publish news that spreads panic. Notice how the market goes up whenever the news broadcasts announce the possibility of a future hard landing and notice how the market goes down whenever the news agencies talk about a never-ending bull market. This means that the price action always starts on the chart before the news affects investors.
Of course, some news has a long-term impact, such as the news of the acceptance of investment funds in the United States. This news will bring billions of inflows as buying pressure that pushes crypto prices up. But even this news in the short term had a negative impact. Always remember that whales use this news to justify the rise and fall in the markets, but in reality, technical analysis and fundamental analysis protect you from this. You also need to know whether the market expects bad news or not. For example, 2023 was a bullish year, although the interest rate hike was very violent. This is because the market was expecting bad news, as the Federal Reserve announced its intention to raise interest rates to 5%. Therefore, there is no problem with bad news if the market expects it, and when it happens, the opposite may happen and the market will rise. The disaster occurs when bad news suddenly appears at an important support area, as happened in August 2024.
Notice how the price fell violently once it broke the $60,000 barrier as a result of the Japanese carry trade disaster.
When is good news effective?
You cannot rely on the rule of buying the rumor and selling the news all the time because sometimes good news may happen suddenly. For example, if a peace treaty is announced and a peace agreement is reached in Ukraine, the markets will boom madly, which may lead to very large increases. This is because the markets love stability, as we said, and grow strongly during times of stability. Also, if a peace treaty is reached in Palestine, the markets will grow. This is because the conflict in Palestine or in Ukraine has a very strong negative impact on the global economy.
This means that sudden good news has a good effect. Also, if this news has a logical analysis that says that the markets will benefit strongly from this news in the future, then in the long run it will have a good effect, such as the news of Bitcoin funds.
How to trade by buying the rumor and selling the news?
If you want to trade by buying the rumor and selling the news, you should do it carefully. Expect a violent rise in prices when the rumor comes out and a violent fall when the news comes out if the news is good. This means that you should know about the rumor before others so that you can benefit from the rise and place long orders early. You should also know that whales seek to control the prices before the rumor comes out and push the price down so that they have an excellent buying opportunity when the rumor comes out. This scenario suits the rumor if it is a prediction of good news such as a rate cut or an expected peace treaty for a war.
On the other hand, if the rumor is a prediction of bad news that will harm the markets, the exact opposite will happen. This means that the markets will fall sharply when the rumor occurs, and then there is a possibility of a strong rise when the news occurs and is confirmed after forming a bottom. Here you can use what happened between the entity and Iran in the previous period. The markets expected the entity to attack Iran, and thus there was a sharp decline in the markets. However, once the actual attack occurred, the decline in the market was weak and fragile, and what happened in the following days was a recovery and rise in the market until Bitcoin exceeded $73,000.
This means that you can profit by selling short when the rumor appears and then buying long when the news occurs and the bottom is formed.
But always remember that the impact is usually on medium-term or short-term levels and not on the long term.
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