Bitcoin Volatility Less This Time Around As Mainstream Beckons
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Bitcoin’s volatility has often been problematic, with some huge swings in the digital currency when it peaked in 2017. The difference now, however, is that billion dollar institutions - such as Tesla, are now investing in this alternate asset class and bringing it into the mainstream.
So, what’s behind Bitcoin’s 2021 rise?
While Bitcoin reached almost $50,000 last week, and a record high for the first time in three years, the price of BTC has been fluctuating over the past few days, as the markets respond to the increase in demand from big investors such as Tesla, Mastercard Inc, and New York Mellon.
Bitcoin seems to be going corporate at a rapid rate, which speaks as much to its decreasing volatility, as it does to it’s value as an asset class. While global companies are investing in Bitcoin, it is on Wall street where the volatility of this digital currency is still dividing opinion.
Wall street is no stranger to volatility, with (albeit smaller) market swings back in the early FX days. The fluctuations of the traditional asset class, however, pale in comparison to the highs and lows experienced with crypto assets.
Despite the still volatile markets, the swings in Bitcoin are however, much less volatile than they were in 2017 when this cryptocurrency was peaking. An investment unit of Morgan Stanley is currently considering whether to bet on Bitcoin, and hedge fund managers such as Paul Tudor Jones, are all helping to legitimise Bitcoin as an asset class.
Bitcoin is a global asset, and therefore less likely to be affected by the financial situation of any one country. Thus far, the stand-out influence that shaped the crypto-world in 2020 was the global pandemic. The covid-19 pandemic impacted financial markets across the world, and led to many investors turning to Bitcoin as a way to protect their assets. The effect of coronavirus on cryptocurrencies, is both a factor in its recent volatility, but also one of the reasons corporate and institutional investment will eventually lead to a reduction in this volatility.
As demand broadens, the volatility of cryptocurrencies will inevitably decline as key financial players show their support. The ambiguity still surrounding Bitcoin, may make its regulatory process a long and arduous journey, but Bitcoin enthusiasts are keen to draw attention to the long-term focus and the much smaller swings in this asset class compared to three years ago.
As Bitcoin makes its way into the mainstream, the uncertainty surrounding this asset class will reduce, as will its market fluctuations. While governments may be slow in their acceptance of this digital currency, tech moguls, hedge fund managers, and global companies are changing the narrative to one where broad acceptance by conventional finance people, sees the global adoption of Bitcoin accelerating.