Cryptocurrency market volatility may be becoming a self-fulfilling prophecy
Crypto CFDs, the crash and bitcoin's place may all gear the market towards cycles of constant volatility.
Analysts have noted the cryptocurrency market's tendency to move in tandem around bitcoin prices. But despite its relative recent stability and advances in bitcoin payment systems, the coin remains an almost entirely speculative item.
For the current money makers, bitcoin might be a lot more profitable as a volatile asset than a stable one, and this volatility might be unlikely to disappear any time soon. And as the preferred medium of inter-coin exchanges, its direct impact on the prices of other cryptocurrencies is apparent and closely reflected in price movements around the cryptosphere.
At the moment, it looks like cryptocurrency's reputation for volatility won't be going away soon. This well known characteristic might now be a self-fulfilling prophecy as cautious traders, chastened by the bloodbath of January-February look for more opportunities to cash out when prices are high, and then buy low to maximise profits.
Buying low and selling high is undeniably the most sensible approach to just about everything, but may contribute to volatility when everyone does it, and potentially put an early lid on bull runs such as last December's.
This might be reflected in the recently capped rise of last week. When everyone (correctly) predicts a drop after every rise and a rise after every drop, it becomes a self-fulfilling prophecy. "Holding" has its merits, but in a climate of constant 20% rises and drops, more will probably feel the urge to play a more active role which in turn contributes to the volatility.
In short, the more people start working the volatile market rather than "holding", the more the market develops towards volatility. Bitcoin, in particular, affects prices around the market and is notoriously volatile which contributes to the whole cycle.
The rapid proliferation of cryptocurrency CFDs, the bulk of which are probably still focused on bitcoin futures, may also be a contributor.
- Bitcoin: Is the cryptocurrency about to ride a short squeeze?
- Bitcoin weekly price analysis 22 August: The market’s top coin lifts its weekly value
- Commercial use of Bitcoin Cash is dwindling
- eToro cements deal with Premier League soccer teams using bitcoin as payment
- Bitcoin and cryptocurrency round-up 21 August 2018
Disclosure: At the time of writing the author holds ETH, IOTA, ICX, VEN, XLM, XRB, SALT