What is market efficiency, how does it affect earning potential?
What does "market efficiency" mean, and how does it affect the chances of making money?
Today, we'll talk about how well the crypto market works. We'll look at how quickly it takes in new information and how you can make money from price changes. We are also looking to the near future, when efficiency will go up and there will be less cash and inefficient niches.
How Does the Market Work?
The speed and accuracy with which information about projects and assets is added to the price shows how efficient the market is. This happens almost right away in markets that work well, but it takes a long time or doesn't happen at all in markets that don't work well.
For instance, the US stock market in 1906 is not very good at what it does. Then there was an earthquake in San Francisco, and only three days later, the shares of the Pacific Railroad fell apart. The news from east to west moved too slowly.
In 2022, the oil market works well. As soon as OPEC and other countries talked about how they could work together to set a high cap on oil prices, the price went up. That is, no one even raised the ceiling. The price goes up right away because OPEC+ lets this happen.
In general, the idea of how well a market works is a theory. Economists have been arguing about whether or not it works for the past 50 years. This idea comes in three different forms.
Weak Efficient Market Hypothesis: All market information from the past is included in the price of an asset.
Average Efficient Market Hypothesis: The price of an asset includes all market information from the past and all publicly available information from the present.
Strong Efficient Market Hypothesis: The price of an asset takes into account all market information from the past, public information from the present, and insider information.
We won't keep going back and forth between ideas. The article only needs to know that efficiency is a measurement of how quickly and accurately the market takes in information. Another question is where this information came from.
What determines how well the market works?
The most important thing is just one thing: the number of trades and how liquid the market is. The market will be more efficient if there are more transactions, and less efficient if there are less.
From the amount of money in the market, other things grow: the speed of transactions, the infrastructure, and the speed at which information comes out. But in general, they show up on their own when there are enough investors for someone to want to make money on investment infrastructure.
For instance, the elite art market doesn't work well. Not a lot of artists charge a lot for their paintings, and not a lot of people are willing to buy them. There, news moves slowly from person to person. The price is not set by the way the market works. Instead, it is set by haggling.
This also works in the stock markets. For "blue chips" like Apple, which are traded by the most investors, the difference in price between buy and sell orders is very small. This means that at any time, the market can very accurately figure out the fair value of the security.
Spreads widen where there is less liquidity, and it can be hard to figure out what a fair price is: it "walks" in the spread gap.
Here, by the way, the ideas of people who believe that markets take in information so quickly that it is impossible to make money on them fall apart.
Everything is simple: if markets are really so efficient that you can't make money by having more information, traders and capital would have left long ago, liquidity would have collapsed, markets would have become inefficient again, and capital would have returned.
But we don't talk about the theory here.
If you are interested in cryptocurrencies, why do you need to know this?
Yes, it is useful even if you are not interested in cryptocurrencies.
By definition, it's hard to make money in markets that work well. If the market is working well, it quickly takes in new information and reacts to what's going on around it. This means that any results of fundamental or technical analysis have already been factored into prices by other market participants. You can buy and sell things, but it will be like a casino.
It's easier to make money when markets don't work well. The less efficient a market is, the more likely it is that you can learn more about the other people in it, act faster, and make more money.
Can cryptocurrency be seen as a market that works well?
The article was written so that this math could be done. No, is the short answer. In one of the most recent studies, experts compared Bitcoin prices to the prices of gold, the S&P500, and the USD/EUR currency pair, which are all well-known assets.
The rate of price change was multiplied by the market capitalization to figure out how well the market worked.
It turned out that the crypto market is much smaller than traditional markets, but here information is "absorbed" much more quickly. This is because trading goes on 24 hours a day, 7 days a week, and information spreads quickly. Also, it's not hard to start trading.
But trading in BTC is not as good as trading in traditional assets. It is clear that the efficiency of most other currencies is even lower, and somewhere in the NFT segment, it is much lower.
Hope you enjoyed the content I created, You can support with your likes and comments this idea so more people can watch!
✅Disclaimer: Please be aware of the risks involved in trading. This idea was made for educational purposes only not for financial Investment Purposes.
---
• Look at my ideas about interesting altcoins in the related section down below ↓
• For more ideas please hit "Like" and "Follow"!
What does "market efficiency" mean, and how does it affect the chances of making money?
Today, we'll talk about how well the crypto market works. We'll look at how quickly it takes in new information and how you can make money from price changes. We are also looking to the near future, when efficiency will go up and there will be less cash and inefficient niches.
How Does the Market Work?
The speed and accuracy with which information about projects and assets is added to the price shows how efficient the market is. This happens almost right away in markets that work well, but it takes a long time or doesn't happen at all in markets that don't work well.
For instance, the US stock market in 1906 is not very good at what it does. Then there was an earthquake in San Francisco, and only three days later, the shares of the Pacific Railroad fell apart. The news from east to west moved too slowly.
In 2022, the oil market works well. As soon as OPEC and other countries talked about how they could work together to set a high cap on oil prices, the price went up. That is, no one even raised the ceiling. The price goes up right away because OPEC+ lets this happen.
In general, the idea of how well a market works is a theory. Economists have been arguing about whether or not it works for the past 50 years. This idea comes in three different forms.
Weak Efficient Market Hypothesis: All market information from the past is included in the price of an asset.
Average Efficient Market Hypothesis: The price of an asset includes all market information from the past and all publicly available information from the present.
Strong Efficient Market Hypothesis: The price of an asset takes into account all market information from the past, public information from the present, and insider information.
We won't keep going back and forth between ideas. The article only needs to know that efficiency is a measurement of how quickly and accurately the market takes in information. Another question is where this information came from.
What determines how well the market works?
The most important thing is just one thing: the number of trades and how liquid the market is. The market will be more efficient if there are more transactions, and less efficient if there are less.
From the amount of money in the market, other things grow: the speed of transactions, the infrastructure, and the speed at which information comes out. But in general, they show up on their own when there are enough investors for someone to want to make money on investment infrastructure.
For instance, the elite art market doesn't work well. Not a lot of artists charge a lot for their paintings, and not a lot of people are willing to buy them. There, news moves slowly from person to person. The price is not set by the way the market works. Instead, it is set by haggling.
This also works in the stock markets. For "blue chips" like Apple, which are traded by the most investors, the difference in price between buy and sell orders is very small. This means that at any time, the market can very accurately figure out the fair value of the security.
Spreads widen where there is less liquidity, and it can be hard to figure out what a fair price is: it "walks" in the spread gap.
Here, by the way, the ideas of people who believe that markets take in information so quickly that it is impossible to make money on them fall apart.
Everything is simple: if markets are really so efficient that you can't make money by having more information, traders and capital would have left long ago, liquidity would have collapsed, markets would have become inefficient again, and capital would have returned.
But we don't talk about the theory here.
If you are interested in cryptocurrencies, why do you need to know this?
Yes, it is useful even if you are not interested in cryptocurrencies.
By definition, it's hard to make money in markets that work well. If the market is working well, it quickly takes in new information and reacts to what's going on around it. This means that any results of fundamental or technical analysis have already been factored into prices by other market participants. You can buy and sell things, but it will be like a casino.
It's easier to make money when markets don't work well. The less efficient a market is, the more likely it is that you can learn more about the other people in it, act faster, and make more money.
Can cryptocurrency be seen as a market that works well?
The article was written so that this math could be done. No, is the short answer. In one of the most recent studies, experts compared Bitcoin prices to the prices of gold, the S&P500, and the USD/EUR currency pair, which are all well-known assets.
The rate of price change was multiplied by the market capitalization to figure out how well the market worked.
It turned out that the crypto market is much smaller than traditional markets, but here information is "absorbed" much more quickly. This is because trading goes on 24 hours a day, 7 days a week, and information spreads quickly. Also, it's not hard to start trading.
But trading in BTC is not as good as trading in traditional assets. It is clear that the efficiency of most other currencies is even lower, and somewhere in the NFT segment, it is much lower.
Hope you enjoyed the content I created, You can support with your likes and comments this idea so more people can watch!
✅Disclaimer: Please be aware of the risks involved in trading. This idea was made for educational purposes only not for financial Investment Purposes.
---
• Look at my ideas about interesting altcoins in the related section down below ↓
• For more ideas please hit "Like" and "Follow"!
🔥Indicators Set - t.me/crypto4light/2155
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💰Join in tg channel - t.me/crypto4light
🐦Follow on Twitter - www.twitter.com/vladi4light
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✅Youtube- www.youtube.com/crypto4light
💰Join in tg channel - t.me/crypto4light
🐦Follow on Twitter - www.twitter.com/vladi4light
📊Max Discounts lnk.bio/discount4light
