The World Is Sinking and The Market Is Jittering

[TL;DR]

🔹 Market jitter refers to the behavior that in the order flow of some digital asset exchanges, the orders of normal users are frequently stuck and delayed, which leads to being preempted by other orders.

🔹 It is considered illegal in the traditional stock market, but this practice is not illegal in the crypto industry at present, because all information is publicly available in the ledger.

🔹 In the encyclopedia of Investopedia, market jitter refers to high anxiety and perceived uncertainty about the economy or specific asset market.

🔹 Whether it is "market jitter" or "market fear", it is an immediate response to the current market situation.



What Is Market Jitter?

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Recently, a new term has emerged in crypto space —— jitters, which refers to the behavior that in the order flow of some digital asset exchanges, the orders of normal users are frequently stuck and delayed, which leads to being preempted by other orders.

In fact, this word is not new. In the traditional financial market, this phenomenon is called "market trembling" and also called "market fear". It is a colloquial term. It usually occurs when negative economic shocks, unexpected bad economic data or bad corporate profit reports aggravate market fluctuations, indicating that there may be problems in the current financial market, and high anxiety and perceived uncertainty about the economy or specific asset market.




Why "Jitter"

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Nowadays, due to the 7 x 24 operation mode of the crypto market, the market fluctuates rapidly, and the speed required for some CEX (centralized exchange) to execute orders is very high. If the user's network speed is not very stable or the server processing speed of the exchange is unstable, and when the order needs to be executed, the order is stuck and delayed and or the network is off-line, which will bring unnecessary losses.

Moreover, when there is a significant market situation, there may be a lot of users performing the same operation at the same time. Before the spread is expanded, there is usually only relatively limited liquidity for investors to grab. Under this circumstance, it needs not only a stable network but also a relatively low delay to trade orders at a relatively good price.

As we all know, the market hates uncertainty. The uncertainty caused by market jitter usually involves not only the risk (known or estimable factors that can be priced), but also the real uncertainty (unknown factors that cannot reliably estimate the risk or probability). Moreover, the jitter phenomenon that involves the user's selling or buying orders stuck in the exchange and new orders in the front is actually a form of insider trading.

It is considered illegal in the traditional stock market, but this practice is not illegal in the crypto industry at present, because all information is publicly available in the ledger.

Recently, the Federal Deposit Insurance Corporation (FDIC) issued a stop letter to five cryptocurrency exchanges and claimed that these platforms issued false and misleading statements, saying that "some cryptocurrency related products are FDIC insured, or the stocks held in brokerage accounts are FDIC insured". FDIC does not provide insurance for stocks or cryptocurrencies. The agency requires the exchange to delete all such references and timely feedback the processing results within 15 days.






Index of Correlation

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In the encyclopedia of Investopedia, relevant content about "market jitters" are also recorded. We might as well make a reference.

"Market jitters" refers to a state of increased anxiety and uncertainty among market participants. Market jitters can be a sign that the stock market is overdue for a pullback or correction. This can lead to a repricing of risk or further degenerate into a significant economic downturn.

When markets experience jitters it can be a sign they are overdue for a correction. Investors may reassess their portfolios and either consider shifts in tactical asset allocation, or rebalancing to bring their portfolios back to their desired strategic asset allocation. As risk is repriced, market jitters can lead to big flows into and out of different global asset classes.

During the period of market jitter, when market uncertainty intensifies, psychological factors often end up playing a role during periods of heightened uncertainty, which can lead to high volatility, dramatic price swings, and market instability. Keynesian economics refers to these types of factors as "animal spirits" due to their perceived irrationality.

Volatility Index (VIX)
Market jitters also tend to induce flights to safety in investments, where investors try to protect themselves from risk and uncertainty by moving into lower risk and lower return asset classes.

In the first half of 2018, the U.S. stock market experienced market jitters, because of fears that the Federal Reserve's interest rate would hike and quantitative tightening might quash the economic recovery, and trigger a sell-off in the bond market and the stock market. Adding to their fears was the flattening of the yield curve and the sudden widening in the LIBOR-OIS spread, which is a measure of stress in the banking sector.

The result of these market jitters was a big spike in the VIX, the CBOE Volatility Index (VIX) for the S&P 500 Index, otherwise known as the "fear index", so market jitters can also be understood as "market fear index".


Greedy Index
In crypto space, it is known as the "Crypto Fear & Greed Index". Initially, the Fear & Greed Index was developed by CNN Money, which can be used to measure the emotions of investors in the market. The two emotions most likely to appear on investors are "greed" and "fear".
The range of the fear and greed index is 0 to 100. The closer the value is to 0, the more fearful investors are in the market. The closer the value is to 100, the more greedy the investors in the market are.

Therefore, the data results can be subdivided into five states: extreme fear, fear, neutrality, greed and extreme greed.

When investors are in fear of the crypto market, the crypto market usually falls below the normal level. When investors are greedy, the crypto market tends to rise.

Crypto market behavior is very emotional. When the market rises, people tend to become greedy, leading to FOMO (fear of missing out). In addition, people often react irrationally to sell their digital assets when they see red numbers. Through the Fear & Greed Index, you can try to rescue yourself from your emotional overreaction. There are two simple assumptions: "extreme fear" may indicate that investors are too worried. That could be a buying opportunity; When investors become too greedy, this means that the market needs to adjust.






Conclusion

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In short, whether it is "jitter" or "fear", it is an immediate response to the market situation. The reflexivity principle of the market also tells us that the market trend will affect the psychological expectation of investors, and the psychological expectation of investors will further affect the market trend.

Since 2022, the cryptocurrency industry has had to face many problems in the past few months, from strict regulatory policies, soaring inflation, sharp decline of the cryptocurrency market, bankruptcy of some cryptocurrency exchanges, to hackers stealing hundreds of millions of dollars in the market.

The current market needs some real "heroism" figures to help it stand up again. Although the future of cryptocurrency still faces many uncertainties, there will always be some leaders who stand up to "unconditionally" support it. Gate.io will spend the "cold winter" with you and welcome the "warm spring" of the recovery of everything.



Author: Gate.io Observer: Byron B. Translator: Joy Z.
* This article represents only the views of the observers and does not constitute any investment suggestions.
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