Bitcoin volatility has been falling recently – is this a good sign for the crypto craze?
George Zarya, chief executive at BeQuant, says YES.
The cooling of the crypto market is a hugely positive sign and not at all unsurprising. It is common to see immature markets and asset classes experience high levels of volatility at the start. For instance, many emerging market equities have gone through a similar pattern to cryptocurrency.
With the retail hype of crypto that reached a peak last December now over, there is a much more positive outlook on the market – for retail investors as well as institutional clients.
An inflow of investment from professional investors has subjected the market to much greater scrutiny, leading to increasing calls for improved regulation in order to reduce the risks that are traditionally associated with the market. As a result, investors have adopted a more tactical approach when deciding on which crypto assets to invest in.
This so-called “coin-picking decision-making” approach has led to more rational investor behaviour in the market, allowing for a more reliable asset in the process.
Arun Srivastava, a financial services and regulation partner at Paul Hastings, says NO.
The bursting of the crypto bubble and the subsequent price cooling pose an important question for the crypto market – if these assets are no longer a route to getting rich quick, what is their purpose?
Yes, in some cases cryptos are being used as a currency substitute, typically pegged to fiat currencies to keep them stable. But without volatility, are they an attractive investment?
The cooling of the market is a clear sign of its developing maturity, and, like all asset bubbles, a major change in the price of cryptos was always deemed inevitable. So it’s positive that from the outset investors have been conditioned to understand that the inexorable increases in value are not sustainable, and prices will fluctuate.
While the cooling in the crypto market may separate the wheat from the chaff when it comes to making the market more legitimate, without volatility the market will lose a key investor demographic – those looking to get rich quick.