Cryptocurrency market volatility: Cryptocurrencies are the most volatile asset in the world. Because of this, the global financial system finds it difficult to consider them as viable alternatives to fiat currencies. The crypto market has the potential to generate or wipe-off billions of dollars in few hours alone.
Bitcoin (BTC), for instance – which is the leader of the cryptocurrency market – has produced huge upside and downside volatility in the last five quarters.
The BTC coin rose from $1,000 level at the beginning of fiscal 2017 to an all-time high of $19,000 by the end of the same year. However, its volatility and unpredictable nature didn’t end there. The coin plunged to $6,000 in the next 45 days after touching the all-time high. And, it continues making big sideways over the last four months.
Cryptocurrency Market Volatility- What has Caused it?
Although pump and dump schemes[1] and illegal trading volumes contributed to the price movements, the cryptocurrency market has been basically moving on speculations and market reports instead of fundamental developments.
Itai Cohen, CEO of Homelend says, “The high volatility of crypto-assets is the result of investors’ reliance on the so-called ‘adoption syndrome’ – where the perception of an asset’s value is mostly based on expectations about its adoption by the community.”
The reports regarding higher adaptation and bullish price bets push the crypto market higher, while analyst criticism and/or lousy news, pulls back the prices.
It’s Dangerous for Future Prospects
The higher level of volatility continues hurting cryptocurrencies ability to work as a medium of exchange and a store of value. Merchants and online retailers have been avoiding the use of cryptocurrencies. PayPal CFO John Rainey says,
