Bitcoin’s Volatility Increases Significantly, to What Extent Does it Matter?
According to various sources including Bloomberg, bitcoin has officially become more volatile than leveraged gold miners ETF after two consequent minor cryptocurrency market corrections.
Analysts including San Francisco-based research firm ETF.com CEO Dave Nadig attributed the recent rise in bitcoin volatility to the lack of overseas regulation on bitcoin trading. However, quite evidently, it is difficult to conclude that the irregular development in bitcoin price has been caused by the lack of global market structure as most countries have already established rigid regulatory frameworks to strictly regulate the bitcoin exchange market.
The US has imposed strict AML and KYC policies bitcoin startups are required to follow, the Japanese government has officially adopted bitcoin as legal payment method, the Philippine central bank has acknowledged bitcoin as a legal remittance method and other countries such as South Korea, Singapore, China and Hong Kong have already provided clear regulatory frameworks and practical regulations specifically for the bitcoin exchange market and industry.
Still, analysts including Nadig believe that the lack of market structure is contributing to the volatility of bitcoin, considering that even some of the largest cryptocurrency and blockchain networks such as Ethereum experience flash crashes on leading trading platforms such as GDAX to this date.
“There have been a lot of advances and it’s been taken more seriously by investors and institutions. But there are all sorts of small steps that start legitimizing a market, and by design bitcoin is inherently unregulated. Part of the reason you end up with volatility is because of the lack of market structure,” said Nadig.
Because of bitcoin’s decentralized nature, it is difficult for any government entity and financial regulator to completely regulate bitcoin similar to the traditional finance sector. But, the bitcoin industry and exchange market have significantly matured over the past two years primarily due to the increase in adoption of bitcoin as digital currency from the general public and by institutional investors.
Particularly, Michael Novogratz recently revealed in an interview with Bloomberg that he firmly believes the market capitalization of the cryptocurrency market will reach $5 trillion within the next 5 years, by 2022. More importantly, Novogratz emphasized that he plans to add more bitcoin to his portfolio of cryptocurrencies if its price falls below $2,000.
The vast majority of early-stage investors in bitcoin such as Novogratz have no intention to sell in the short-term and have invested in the cryptocurrency with confidence that it could evolve into the alternative financial network that will compete with reserve currencies and existing banking systems in the near future.
“Over the last two and a half years to mid-last year, volatility had been trending way down and compared to roughly that of small-caps. Some of the major drivers now have been bitcoin trading with other cryptocurrencies, and when you have these big run ups, it increases the chances you’ll have a large drop,” Blockchain Capital head of research Spencer Bogart added.
Author : Joseph Young