Cryptocurrency Extreme Volatility: Never The Safe Haven Gold Can Be

For a while, cryptocurrency seemed to be gaining favour with investors seeking to offset the effects of monetary inflation. However, that money now seems to be moving into gold. This is evidenced by the recent upswing in gold price. You can visit goldcore website to see the live gold rate.

Bitcoin, the king of cryptocurrency, was doing well for many reasons, but the threat of inflation is the primary one. That being said, Bitcoin is almost a law unto itself even among cryptocurrencies. Now, however, Bitcoin has crashed, and it appears that it will continue to fall to the 75-80% down level of this market cycle. When faced with a crash, investors seeking safe haven assets have and will flee bitcoin, naturally turning to gold. 

Of course, there was a drop in gold demand caused by a Covid-hammered jewellery trade. This was exacerbated by frenzied selling from gold hoarders who found themselves in financial straits because of the pandemic. These reasons were certainly stifling gold’s performance. 

But things have changed. The reopening of the global economy, if it continues on its current path, will revive the jewellery trade, resulting in a major recovery in gold demand. Perhaps people want to use whatever pandemic savings they’ve accrued to put their money into something tangible. Something solid like gold.

Extreme volatility happens when the price of an asset varies dramatically in a short period of time. Most cryptocurrency market analysts will agree that crypto volatility is in a league of its own. There are no indexes to assess crypto price volatility, but a cursory check of historical price charts reveals that crypto prices experience higher peaks and lower troughs. These highs and lows also come at a much faster and more intense rate than those of assets in conventional markets. Let’s take a look at some of the reasons for cryptocurrencies extreme volatility.

Still Emerging

Despite all the attention that cryptocurrencies have received in the media over the years, the market is still small in comparison to fiat currency and gold. The bitcoin market was just over $800 billion at its peak. When compared to the overall value of the gold market, which is $7.9 trillion, and the stock market in the United States, which is $28 trillion, this is pennies on the dollar.

Because of the market’s tiny scale, lesser forces can have a greater impact on price. If a group of investors chose to sell $500 million worth of gold, the price of gold would scarcely move. If the same thing happened to Bitcoin, the entire market would be destabilized, and the price would plummet.

Digital Only

Most cryptocurrencies are completely digital assets with no physical backing, such as money or a commodity. That is to say, their price is solely determined by supply and demand. Many cryptocurrencies, such as Bitcoin, have a set or predictable supply. Thus, the price is determined by how many people want to acquire Bitcoin right now.

The biggest cryptocurrencies have no tangible assets to underpin their value, and no governments to enforce their usage as a currency. That is to say, their worth is solely based on faith. People will likely sell Bitcoin if they no longer believe its value will hold or continue to climb. This may lower the price and persuade others to sell.

Speculation

Many of the factors that cause price volatility in traditional markets also apply to cryptocurrencies. Price movements in crypto and mainstream markets are fuelled by news and speculation. However, because crypto markets have less liquidity than traditional financial markets, their impact is magnified. This is due to the fact that crypto markets lack a healthy ecosystem of institutional investors and huge trading organisations. Because both feed off of one other, increased volatility and a lack of liquidity can be a deadly combination. Most cryptocurrencies, with the exception of bitcoin, lack developed and widely used derivatives markets. Cryptocurrency prices occasionally exhibit healthy volatility similar to that seen in the mainstream market due to the influence of day traders and speculators.

Technology

The development of blockchain and other alternative crypto technologies is still in its early phases. It will be some time until the market matures, as the idea of cryptography-based decentralised currencies was only presented in the Bitcoin whitepaper a decade ago. Despite this, several businesses have already embraced blockchain technology and are actively using it for marketing and promotion. AdEx, Brave, and Steem are the most promising projects in the space. Because many customers value the transparency and other benefits of blockchain, exploring this technology in brand marketing might be quite useful.

When technological challenges, such as the blockchain scalability problem, aren’t solved in the period that many predict, they put downward pressure on crypto values. Or when the effects manifest themselves as network congestion and high transaction costs.

Not Backed by a Traditional Framework

Although Goldman Sachs reopened its cryptocurrency trading desk in March, and JP Morgan is reportedly considering launching a Bitcoin fund–a lot of institutions still will not touch cryptocurrency.

HSBC’s chief executive has stated on May 24th  that the bank will not enter the cryptocurrency industry due to worries about volatility and lack of transparency. This is a strong and decisive indication as to what traditional market players think of cryptocurrency.

Other financial institutions, on the other hand, have expressed reservations. Natwest said last month that it had “no appetite” to service cryptocurrency-accepting corporate customers since it is taking a cautious approach to the market.

Even Elon Musk, the CEO of Tesla, abruptly announced that the electric carmaker will no longer accept Bitcoin as a payment method due to the cryptocurrency’s “environmental problems.” The 49-year-old entrepreneur made a stunning declaration on Twitter, saying that he was concerned about the effects Bitcoin mining was having on fossil fuels.

Conclusion

In comparison to cryptocurrency, it’s easy to see why gold is the safe haven. Gold, according to experts, has two long-term benefits: risk and volatility protection and asset appreciation. It’s a protective asset that shines in the long run. Even if it does not always rise, an asset that remains stable while others fall is fairly beneficial as a hedge. Furthermore, as more people abandon stocks in favour of gold, the price climbs accordingly.