One of the things that made Bitcoin popular is its price volatility. It was able to skyrocket to near $20K level in 2017 considering that it started only around $1,000 during the start of that year. And because of this, it has attracted different individuals looking to earn some profits, looking at Bitcoin as some get-rich-quick method that they can invest in.
However, wild price swings are also the reason why it is risky. For instance, from December’s near $20K, Bitcoin is currently trading around $6,500. Bitcoin lost a significant amount in 2018 and even traded around $5,700 in its lowest this year.
Regulatory Changes and An End to the Wild West Days?
The reason behind the bearish market is regulatory changes. Regulators are looking for ways to end the Wild-West nature of cryptocurrencies. But one of the things that is quite noticeable in today’s Bitcoin price is the obvious decline in its volatility.
According to Highcharts, Bitcoin volatility index in the last 30 days is at an estimated 1.73 percent. And in the last two months, it was at 2.58 percent. There are different factors that can be considered as to why Bitcoin’s price has become somewhat stable. For Bob Mason who is a financial expert at FXEmpire, he believes that the “low volatility is also a statement that price manipulation has perhaps abated”.
Mason further discussed that “After wild swings and roller coaster rides, Bitcoin looks to have settled into a long term relationship with its investors, who are not speculating their days away and appear to be in it for the long haul”.
Does it really mean that people are now holding on to their Bitcoin? This could actually be true. It is possible that the crypto niche has slowly taken out those who only invested in the cryptocurrency for a quick buck.
A Concern of Legislators and Regulators
One of the reasons why legislators and regulators went after the crypto market is mainly because of its high volatility that could be because of the possibility of price manipulation. In recent months, a call towards having a Bitcoin ETF has become popular. In fact, Cameron and Tyler Winklevoss are among those who submitted their own Bitcoin ETF application. Unfortunately, the Winklevoss twins were rejected by the SEC twice. In fact, the latest rejection cited the possibility of price manipulation as its main reason.
In the document, the SEC mentioned that “The Trust’s documentation states that momentum pricing of bitcoin has resulted and may continue to result, in speculation regarding future appreciation in the value of bitcoin, making the price of bitcoin more volatile”.
In early 2018, Senate banking committee hearing discussed the risk posed mainly by Bitcoin and other cryptocurrencies’ volatility. Heads of both the SEC and the Commodity Future Trading Commission attended this hearing to explain these risks. During the hearing, SEC Chairman Jay Clayton mentioned that “Just recently the volatility in Bitcoin was not as great as the volatility we’ve seen in other securities such as the VIX product”.
A decrease in Bitcoin’s volatility could also increase the possible adoption of the cryptocurrency by businesses. One of the things that is stopping businesses from using the cryptocurrency is the fact that its price fluctuates wildly.