Centralization and volatility

Market concentration

Similar to the distribution functions (extreme value) of money in any of its manifestations (M0-M5, i.e. currency notes, bonds, assets, gold or other stores of value), Cryptocurrency markets are also concentrated.

The market share of the top 5 currencies (almost 90%), the network mining hashpower (total Megahashes per second) controlled by the top 5 mining pools (almost 85%) and the top 5 Crypto-exchanges (80% share of volume of trade) all garner the lion's share of the market.

Similarly, the ownership distribution for cryptocurrencies is highly concentrated. At least, for Bitcoin, the top holders listed here own significant value in these markets.

Signaling and Regulation

While Satoshi Nakomoto remains unknown, though he holds about $4 billion (at 4000 USD/BTC), several influential holders actively make public predictions of a 10000% growth in value in a short time. To add to this milieu of information is the fact that many amateur analysts contribute to publicly available information about price movements. Compare these signals to that of publicly traded firms.

Publicly traded firms release price movement predictions through a properly audited statement filed with SEC every quarter. However, public companies do announce product release plans, etc. ahead of time - but would never release statements about the valuations of their stocks prior to the result announcements. Additionally, SEC rules prevent insiders (or their relatives) from trading on the corresponding stock for a certain time window close to the announcement of quarterly results. This arrangement prevents many ills such insider trading, or, leaks of information that would have otherwise made markets more inefficient wherein individuals with more information can either go long or short on a particular stock.

Informationally inefficient

Similar regulations cannot be affected in the cryptocurrency market by SEC. Trade in Cryptocurrencies happen globally, and news of events affecting cryptomarkets affect prices across geographic and economic boundaries. Each online wallet creator such as Coinbase, Kraken, etc.. operates as a separate exchange (.e.g NASDAQ, NYSE, etc.), with minor price differences between exchanges. One of the key facets of market efficiency is that the price (at any given time) of an asset (or stock) traded in the market incorporates all information about that asset at that given time. Note that "time" and "information" are of paramount importance in the previous statement.

If this information itself is not good, then volatility would continue to be a characteristic of this market. Informational inefficiency and the difficulty to regulate this market is just one of the other reasons why volatility would persist in these markets.

Problem to ponder

How can crypto-ecosystems regulate information that affects trade?

Can these markets ever become devoid of massive volatility?