The volatility of cryptocurrencies persists despite indications that the crypto-market is headed towards mainstream . Bitcoin is currently trading at around $14,000 after it had surged to nearly $20,000 on December 17th (CoinMarketCap). In the month of November, bitcoin’s price also fell from almost $8,000 to $5,500 in a span of 4 days. The month of September also experienced a major drop in bitcoin’s price when it fell from around $5,000 to a little under $3,000.
South Korean Financial Supervisory Service has said that bitcoin and other cryptocurrencies do not qualify as real currencies. Japan’s Finance Minister, Taro Aso, expressed concerns that there’s “no fixed definition” for cryptocurrencies. Basically, he meant to say that there doesn’t seem to be a consensus on whether cryptocurrencies meet the defining characteristics of “real” currency.
Volatility of cryptocurrencies can perhaps be attributed to the varied and constantly evolving perception of their value. ASRW Derivatives and Equities Adviser, Shane Chanel, said that, “Keep in mind that bitcoin has gone up a lot this year, so a correction is always likely” in response to the recent drop in the value of the cryptocurrency market. It would be conceptually incorrect to think of or try to equate the cryptocurrency market to the traditional stock market, equities or bonds. Chief strategist at Tokyo’s Monex Securities, Takashi Hiroki, has remarked that trading in crypto is like gambling. Due to the potentially great risk factors for investors, high volatility of cryptocurrencies will likely continue in 2018.
80% of global bitcoin trading activity was carried out in Vietnam, Japan, and South Korea. Regulators in these countries have expressed their concerns regarding the sharp rise in popularity of these currencies. Bank of Japan Governor Haruhiko Kuroda referred to the rise of bitcoin and other cryptocurrencies as “abnormal”. His use of the word abnormal was in comparison to other charts. He might have a point, because if you examine the charts of cryptocurrencies, the volatility of cryptocurrencies is considerably greater than the charts of fiat currencies or other financial assets.
Despite the recent drop in the crypto-market, Goldman Sachs Group Inc. is preparing a trading desk for bitcoin and other cryptocurrencies. Goldman Sachs now has the distinction of being the first Wall Street firm to delve into the crypto-market. Meanwhile, in the Asia Pacific, China’s central bank has been planning to create its own digital currency. Lead researcher at the People’s Bank of China, Yao Qian, and the governor of China’s central bank, Zhou Xiaochuan, think it’s vital for cryptocurrency to be issued that’s backed by a country’s central bank.
State-backed digital currencies could eventually bring down the volatility of cryptocurrencies, but this seems to be against the true spirit of cryptocurrencies. Cryptocurrencies were designed with a vision that they could function in a decentralized manner, independent of centralized authorities like central banks. Although cryptocurrency volatility remains a concern, it’s worth noting that the crypto-market is still in its infancy.