Crypto Investing #27 – What Causes The Big Price Moves In Bitcoin & Cryptocurrencies?

Tai Zen: What’s up, this is Tai Zen and I’m broadcasting from a Starbucks in Boston, Massachusetts. This is the city where the World Bitcoin Network Headquarters is at without Jame D’Angelo. On the other side of this camera, I got my buddy, JW with me again.

JW: Hello. I have a lot of good questions for you.

Tai Zen: So JW was asking me about some questions. He had some questions about what causes the price of Bitcoin to go up. I’m gonna share with you my thoughts and my observation.

Now I want you to know the background I have. So I’ve been trading Stocks, Future and currencies since the beginning of 2008, so I had the opportunity to trade through the biggest stock market crash in human history. I learned a lot during that time and I’ve had the privilege of having lots and very good traders that have coached me along the way throughout the years.

So keep in mind what I’m about to share with you, about what causes the price of Bitcoin to go up like crazy when it does, it goes up to the moon very quick and very rapidly. And I want you to understand that what I share with you is based on my experience and my observation in traditional trading from Stocks, Futures and currencies.

I’m trying to take what I’ve learned in my experience, in training from the traditional asset classes and applied towards this new asset class called Cryptocurrencies, so I want you always keep that in the back in your head, that’s where I’m gaining my knowledge and experience from so you are aware of it. Before I share with you how the price of Bitcoin runs up very quickly like it is right now from $425, in the low $400, now it broke above $470 as I’m making this video, I want you to be aware of something.

In the stock market, whenever you have a big institution, the only people that are capable of moving the prices in the stock market is people that have a lot of money. We’re not talking about somebody that’s a millionaire that has half a million dollars or million dollars in their trading account. We’re talking about somebody that they can lose $20 million and it doesn’t hurt their ability to trade.

They can continue trading their same strategy or invest in the same strategy without any problems. I want you to imagine how big institutions buy and sell something. When they are buying and selling a stock, let’s say that we have the construction workers union here in Boston and they need to buy a million shares of Apple stocks for their union employees.

What they’re gonna do is they’re not just gonna go in there and just buy a million shares of stock right away, because if they do that, everybody’s gonna see their order and it’s gonna jack up the price as they buy it from all the bids and the air and the ask and the offer from the people who are asking a certain price for their Apple Stocks and from the people that are offering a certain price for their Stocks, it’s gonna run the price up. So what they have to do is they have to go in and buy a little bit at a time, 100 shares here, 100 shares there, 50 shares here, 10 shares there.

And when the big institutions are buying Stocks, they never buy at one price like an individual like you and I. If we go in, we want to buy Apple Stocks, we’ll buy that $120, $130, whatever the price is. The institutions never buy one set price, the way they buy is what we call an average price, meaning that when they buy that million shares, their analysts and their research team at the trading firm, they establish and they make an agreement with the union, the construction workers union, they agree that they’re gonna buy Apple Stocks at $120.

So when they do that, what the trading firm will do is that they will create an algorithm and create some software, and what they’ll do is they’ll put a cap on the price and in a ceiling on the price of the stock, and they put a floor on the price of the stock. What happens is when they put that ceiling in, that floor in, the computer algorithms will go in and they’ll buy the Stocks and as they buy it, it’ll run the price up to and on purpose, they will sell the stock to run the price back down.

And as it comes back down, they’ll buy back in and bring it back up. So they play ping pong game in the markets, that’s why you see the markets consolidate. When the market is just going sideways like this, they’re doing something you don’t see, you only see the results of it, you don’t see the actual computer algorithms being at work to compress the price within that range.

They are willing to spend hundreds of thousands of dollars, even millions of dollars to get the price to lock it in so that they have an average price. Sometimes when the price comes up and it comes up too fast and too high and it’s outside their range that they want to buy, they will purposely sell the shares that they have to really quick and really fast and push the price back down so it stays within that range that they want to buy the shares at.

And once they accumulate their million shares, they remove that algorithm and what happens is now the price of that stock can go back to its normal market price and then either it shoots up or it drops, either way, the union gets their shares, the trading firm gets the shares that they want and they get it at the average price that the trading firm and the union agrees on.

They make the exchange, they get paid and everybody’s happy, meanwhile, the price of the stock continues either up or down on its natural course. Now I share that with you because, in the world of Stocks and Futures and currency trading, there’s a lot of government regulation that makes it a little bit difficult to do, so you have to have a lot of money and lots of good computer programmers to create those algorithms to be able to do that.

It only works in a temporary time period and then after that, they have to update the algorithm, so it’s not something that you can just plugin and then just let it run all the time. You put it in and then you have to, the team has some other trading firm has to monitor it, update the software on a constant basis, sometimes on a daily weekly basis.

But it’s constantly updated, it’s constantly being monitored by humans. There’s no algorithm out there that just run 24 hours a day by itself without human oversight or human watch or human intervention.

In the world of Cryptocurrency trading, the advantage you have is that you don’t have a lot of these regulations that the government puts on trading, because it’s a new asset class that’s being created. Everybody understands what bonds are, what precious metals are, what stocks are, what commodities, what Futures are.

Everybody is familiar with that so everybody knows the regulations behind trading and investing in these traditional asset classes. But for the Cryptocurrencies, it’s a new asset class that nobody knows about, the government doesn’t understand it and they don’t have the correct regulations and the rules on it.

So what happens is you have traders out there in the Bitcoin world that are very good computer programs like The problem is like my buddy, he has computer skills and I have trading skills, if we match it up, we can figure out some algorithms to create the trade Bitcoin too.

The only problem is right now, for us, it’s a waste of time. You got to have a lot of money to trade these things, to build these algorithms, adjust it, has coders on hand and so all that. So we have people out there, I don’t know who, I don’t even have the evidence to even show you that there are programs out there and heavy traders out there that are doing this.

But what I can show you is what it looks like on the charts. When you see these huge monster moves up or down in the markets, in the Bitcoin market that is caused by people with lots of money, it’s not my people, you and I who are trading half a Bitcoin, a quarter of a Bitcoin or half a Bitcoin, it’s none of that nonsense, it’s people with millions of dollars.

What they do is they unload the price, they will put those algorithms in and cause the price to just stay locked in. If you look at a daily chart of Bitcoin and I’m looking at the daily chart of Bitcoin on Bitfinex, if you look at the daily chart, almost every Cryptocurrency analyst or trader has seen, it’s very obvious that it is going into a wedge pattern.

Now if you don’t understand technical analysis, a wedge pattern indicates a consolidation, that means that the price is consolidating and whoever it is or a group of people usually with big money, they are consolidating and they’re pressing the price down to get those average price of the Bitcoins that they want. If you noticed, recently there has been a break outside that wedge.

Now every technical analyst agrees that wedge formation in the price of Bitcoin, that wedge formation is a consolidation, and what consolidation means, some people call it a consolidation period, some people call it an accumulation period. Now I like to use the term accumulation because it actually describes what’s going on in the markets as it’s coming to a wedge. Like I told you, those algorithms that are trying to buy those Bitcoins, they’re keeping the price at a certain point.

And then after they start to accumulate more and more Bitcoins that they need, it compresses, they bring the algorithm prices in. What happens now is the price is bouncing back and forth because they’re nearing the completion of their accumulation phase where they acquire all the Bitcoins that they need.

Once they acquire all of the need, they remove the algorithms because it’s no longer needed to gain that average price of the Bitcoins that they want. So once they let go and remove their algorithms from the exchanges, what happens is the natural price of Bitcoin automatically moves. So now, because of that, it’s going up to above $470.

Then once it starts to go up, what happens is Bitcoin whenever it runs up, since it’s the granddaddy of all the Cryptocurrencies, you hear me talk about Ethereum or any alternative Cryptocurrency, always remember that there is a reason why Bitcoin is worth $470 a Bitcoin while everything else is worth pennies or Ethereum is worth like $7 which is the highest one so far.

There’s a reason why Ethereum, Litecoin and all these are worth $4 or $5, $7 while Bitcoin is worth $470, it’s not even in the same league of value. So don’t ever forget that, no matter how many videos you see me make or how many videos you see other people make online, there is a value to Bitcoin, that’s why it’s $470 a Bitcoin versus $7 or 7 cents.

So what happens is Bitcoin creates what’s called awake. Awake is when a boat or something fast cut to the water and it leaves a wake behind it and it sucks you in with it. If you have ever been like near a train station in New York and Boston or buy a car that goes by really fast if you stand there in the car, the train goes by really fast, it tends to suck you in with it if you stand too close.

So because all these alternative Cryptocurrencies outside of Bitcoin, they are all dependent, you can only buy Ethereum with Bitcoin, you can buy Litecoin, Dogecoin, NXT, Augur, anything. Everything that you buy, you have to do with Bitcoin and then once you get into that alternative Cryptocurrency, you can use their Cryptocurrency to make the exchange. But you still got to buy it with Bitcoin, everything has to go through the Bitcoin before it becomes a Fiat or before it becomes a Cryptocurrency.

So because of that, all these alternative currencies are very close, they’re very tied to Bitcoin so when Bitcoin shoots up in price or goes down in price, it creates what I call a price wake, that doesn’t mean like you wake up, it’s more of like an ocean wake, it creates a vacuum that sucks everything in with it. So because of that, it will suck in the price.

Right now if you look at the history I’ve noticed, I just noticed that when Bitcoin shoots up really big when it first to start incline and go up in price, the price of the Altcoins will go down in value. But if Bitcoin continues to go up higher and higher, if the Altcoins are to go down but then it starts to turn around and follows along with it and it drags it up with it.

I just want you to understand that as you see the price of Bitcoin and shoot up and the price of the Altcoins going down, that’s the main reason why. Does that help? Do you have any questions about that?

JW: No? I would love to know who’s buying these Bitcoins, although the volume is only $80 million so it can’t be an individual. But I don’t think it’s a big bank or a big institution.

Tai Zen: I do believe it is a big bank or a big institution. It has to be somebody that has a lot of money.

JW: But if the average volume is said $40, $50 million a day, it’s only $30 million above, which is a pimple.

Tai Zen: So here’s the thing, you see only $70, $80 million of Bitcoin being traded each day, but how long has it been trading like that? So think about it. If you and I buy or sell a Bitcoin, we might buy 1 today, sell 1 tomorrow, we buy 5 today, sell 2 and a half tomorrow, the amounts that we buy and sell are so small that it’s not worth mentioning.

But $70, $80 million of it being traded every day, who’s buying all that? It’s got to be somebody with big money and what they’re doing is like because there’s a lot of Bitcoin projects that’s going on out there, there’re people that’s doing private projects, we only hear about the public projects that people work on like R37, those places like that. But what about all the private projects that no one talks about? I mean not everybody’s gonna release what they do.

And if they build their project on top of the Bitcoin network, on top of the Bitcoin blockchain, guess what they need to run it? Bitcoin. There are people out there that I believe, I don’t have any evidence of it but I believe that there are companies and businesses out there that are building Bitcoin projects and Bitcoin applications that are very powerful. They need not just money but Bitcoins to run their projects.

So because of that, they’re buying a little bit here and there and then they’re testing it internally, and then when they release it to the public, they might need all those Bitcoins and stuff. Imagine if you’re the New York Stock Exchange or the NASDAQ exchange, the NASDAQ has already tested some over-the-counter stocks being cleared and settled on the Bitcoin blockchain.

When they do that test, do you think they’re gonna do with 1 or 2 Bitcoins? No, they’re probably gonna need a few so they’re gonna accumulate some and just put it there and for them to buy up a hundred or a thousand Bitcoins, that’s nothing to them. To us, it’s a large number but to the big institutions, that is nothing for them to buy a million dollars worth of Bitcoins, that is nothing to them.

You might look at the Winklevoss funds, the Bitcoin funds that people are starting up for them to buy $5 or $10 million with a Bitcoin, that is nothing to them. The investors that invest in these funds in America, they have to be a millionaire and net worth of a million, they have to be what’s called an accredited investor meaning that they have to have a million-dollar net worth and they have to have an income of $250,000 a year to invest into these funds, that’s my law in America.

That’s not my rules or your rules, that’s an American law but you have to have that kind of money in order to invest in these types of hedge funds. If you’re an accredited investor and you give these hedge funds $200,000 or $500,000 or $1 million, if they collect that from like 100 people, they can move the market, it’s not even an issue. The thing is individual traders at home, it’s hard for them to imagine those large numbers.

But for these big institutions and hedge funds, that means nothing to them. That’s why I believe that’s what’s happening, we don’t know but that’s what happens in the stock market. I believe that’s the same thing that’s happening whenever we see that consolidation, that’s what’s happening in the Bitcoin market.

So if you like these types of videos, give me a thumbs up. You don’t like it, give me a thumbs down. You haven’t subscribed to my channel already, make sure you do.

If you have any friends, family or colleagues that are interested in investing in the Cryptocurrencies, make sure that you invite them to check out my channel and subscribe to it and I’ll share any new information I come up with you. Alright, thanks for watching this video and I’ll see you in the future video.

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