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There is a popular saying in the stock market, "The news never hits the markets like a ping-pong ball."
For those who follow economics or business news closely, it's easy to see the logic of this. Since so much of the economy is affected by the state of the national news, it would be easy to assume that if something happens in the news, it will have a profound effect on the stock market. It's just not so.
How the news influences the market is complicated.
One example is the European debt problems. Many investors were panicking that the European government would use its newly gained leverage to get its way into debt negotiation with its creditors and start buying up those financial assets it does not need. The news reports were all about how the European government was going to use the crisis as an opportunity to gain more power in the European Union, and exert more control over the world economy. And while this is true, and even predicted the problems that would arise, the ripple effect didn't happen.
The ripple effect didn't happen because the Europeans did not buy up the shares of debt that they needed to solve their budgetary problems. No, the ripple effect didn't happen because the European government decided not to buy the debt of other nations. No, the ripple effect didn't happen because of anything that happened in the news. No, the ripple effect didn't happen because the Financial Times published an article saying that the European government might default on its debt. No, the ripple effect didn't happen because some news outlets published quotes from anonymous sources saying that the European government might file for bankruptcy.
No, the largest ripple effect was how the news affected the price of bitcoins.
When news outlets published quotes from anonymous sources quoting that the European government may choose to declare bankruptcy, the price of bitcoins immediately increased. At one point, the news was so out of the ordinary that someone started a rumor that the United States government was going to announce a plan to make the price of bitcoins go up.
Of course, the people who were speculating about this particular news wanted to believe that it was the right thing to do, but the ripple effect was too powerful. This is because the price of bitcoins had already begun to increase before anyone knew that the European government was actually considering bankruptcy. So, instead of people jumping on the "your government will bankrupt itself!" bandwagon, they instead saw the news as confirming that their theory was correct - that a news agency was saying that the European government could choose to declare bankruptcy and cause a currency war. In other words, the news agencies had essentially declared a war on deflation.
So, why are news agencies often the cause of volatility in the price of a particular asset?
It's simple: the news has a powerful effect on how people react to it. As the news agencies publish reports that are damaging to the governments in question, people feel much more sympathy for the governments than they have for the people who are affected by the stories. Then, as the news reports begin to circulate and the damage is done, the news causes the price of that asset to go down. This naturally causes the economy to contract, causing interest rates to go up, and so on.
The best way to figure out how the news influences Bitcoins is to look at how other large news outlets have handled similar situations. For instance, when there was a financial crisis in Japan, the price of one Japanese yen immediately skyrocketed above the price of one US dollar. However, as soon as the news broke that the Japanese government was considering a financial solution for their debt problems, the price of Japanese yen began to plummet. Thus, the government was able to use the news to change the public's perception of that debt, and they were able to keep the economy from completely collapsing.
In this case, we're analyzing a situation where a major event occurred that temporarily changed the public's perception of an asset (in this case, the Japanese currency).
To some degree, the public was already predisposed to favor a solution to their debt problems before the news agencies even reported that the solution was being considered. To get a better understanding of how the news influences bitcoins, it's important to analyze how other major news outlets might have responded. For instance, if a natural disaster had hit Texas and Louisiana, the news agencies there might have quickly published a report detailing how bad the flooding was and how residents were desperate to get help in order to save their lives.
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