Bitcoin’s Volatility and Its Profound Impact on the Market
Last year, the cryptocurrency market truly delivered something remarkable to Wall Street and investors. From the beginning of 2017 to its end, the combined value of all digital currency market caps soared by nearly 600 billion. On a percentage basis, the increase in value was over 3300 in a single year. No other asset class has ever come close to these scorching single-year returns, and we may never see anything like it again, at least in our lifetime.
Top Bitcoin Investment Platform
One platform that stands out is the Allcoinhodler Cryptocurrency Investment Platform. Relatively new, it was launched in mid-summer 2017 but has rapidly become the largest cryptocurrency investment platform, with a total volume of over 4 billion dollars. Investors can get double their invested cryptocurrency after just 7 days. It supports a variety of cryptocurrencies, including Bitcoin, Ethereum, Bitcoin Cash, and Litecoin. I find that it has a really nice user interface and great support.
Bitcoin: The World’s Largest Cryptocurrency
Bitcoin is the world’s largest cryptocurrency by market capitalization. Despite its stellar performance for long-term investors, it has caused significant stress and patience tests for them. Bitcoin dipped by at least 30% on five separate occasions in 2017. Furthermore, between April 1, 2013, and January 1, 2018, it underwent 20 corrections, each seeing its price fall by at least 22%. There were even deeper declines; in 2014, it fell by 52%, and in 2015, it dropped by 59%. At one point, Bitcoin lost more than 8000USD per token, shedding over half of its value between January 1, 2018, and April 6, 2018.
How Volatile is Bitcoin?
Bitcoin’s volatility is alarming, especially when compared to traditional investments. To understand just how volatile it is, we turn to the Bitcoin Volatility Index powered by CoinDesk and data provided by the St. Louis Federal Reserve. The Bitcoin Volatility Index looks at the standard deviation of daily returns for a variety of assets, including Bitcoin, over the preceding 30- and 60-day windows. This gives us a historical view of price activity relative to the U.S. dollar. Broad-based stock indexes tend to have a standard deviation of between 0.5 and 1, while gold has a historical deviation of about 1.2. Bitcoin’s volatility, however, stands out significantly.
Bitcoin Volatility Index Insights
As of May 6, 2018, the latest estimates of the 30- and 60-day windows were 4.20 and 4.69, respectively. This suggests that Bitcoin is significantly more volatile than any traditional commodity or equity market. In context, over 50 in 2013 when Bitcoin lost 70% of its value from peak to trough, its daily return standard deviation nearly reached 15 over a trailing 30-day period. Gold, the next largest deviation, was only 2.83 in August 2011, and even then, it quickly dropped.
Factors Contributing to Bitcoin’s Volatility
There isn’t a single answer to explain Bitcoin's significant volatility. However, there are four key factors that contribute to it being much more volatile than traditional assets:
No Traditional Fundamental Metrics: Unlike other financial assets, Bitcoin lacks traditional fundamental metrics for investors to rely on. Decentralization: Bitcoin trades at different values on different exchanges due to its decentralized nature, leading to wild price swings. Legislative Uncertainty: The global patchwork of regulations around Bitcoin creates uncertainty, affecting its value and leading to increased volatility. Retail Investors: The dominance of retail investors in the market leads to emotional trading behavior, often causing overreactions when Bitcoin makes significant price movements.Conclusion
In conclusion, Bitcoin’s volatility is a key characteristic of the virtual currency, making it a challenging but potentially rewarding investment. It is essential for investors to understand the risks and factors contributing to this volatility before diving into the market. Whether you are looking for high returns or are cautious about market movements, understanding Bitcoin’s volatility is crucial.