The Bitcoin rollercoaster has taken on new highs and lows recently taking the cryptocurrency market on a wild ride.
Bitcoin has fallen close to $30,000 and risen up to $50,000 in recent weeks, creating ripple effects on other digital currencies such as Ethereum.
But experts say the volatility is nothing new and all just part of the teething problems any disruption technology experiences.
“Volatility has been a large part of the crypto landscape, particularly over the past four or five years, to the point where Bitcoin’s realised volatility has been up to 10 times that of equities,” said Tony Sycamore, City Index market analyst.
“High volatility is typical during the early stages of new technology, with excitement driving large rallies followed by significant declines.
“In the mid to late ’90s, similar price behaviour was commonplace during the introduction of the internet.”
COVID-19’s far-reaching economic impacts have also added to the tumultuous performance of Bitcoin.
“COVID has been a factor in Bitcoin’s performance, although more indirectly than directly,” Mr Sycamore explains.
“Bitcoin and other cryptocurrencies are considered “risky assets” correlated with other ‘risky assets’ such as equities.
“This means that as equities have moved sharply due to COVID-related news, the move has often been replicated in the crypto space.”
The ups and downs of Bitcoin have had a dragging effect on the prices of other crypto currencies such as Ethereum, Cardano and Solana.
“The entire cryptoasset market tends to be correlated to an extent, though individual tokens are showing more and more differentiation as they develop their own unique use cases and sets of investors,” said Matt Weller, global head of market research at City Index.
Bitcoin’s wild swings have prompted some traditional investors, such as billionaire Wall Street figurehead Leon Cooperman, to warn people away from the currency. Yet others say cryptocurrency is the way of the future.
In a global survey of 1280 senior executives, Deloitte found 76 per cent believe digital assets will either be a strong alternative to, or outright replacement for, fiat or traditional currencies in the next five to 10 years.
This reflects a growing number of authorities backing the crypto market, including El Salvador which became the first country to adopt cryptocurrency as legal tender this month when it purchased 400 Bitcoin worth about $20.9 million.
As their popularity and acceptance increases, there is growing evidence cryptocurrencies are becoming more stable, said Mr Weller.
“Cryptoassets have been highly volatile since their inception, and at the margin, are actually becoming less volatile as they mature and become more entrenched in the financial system,” he said.
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