2018 Cryptocurrency Volatility Decrypted

Some quick prose on recent causes of volatility in the crypto-space.

Profit taking:
Strong new year profit taking & Chinese New Year (#CNY) places high selling pressure on the wider space. Given 2017’s very strong growth across the majority of #cryptocurrencies the Return on Investment (#ROI) for many early investors was substantial enough which ultimately led to some strong profit taking in most coins (high selling volumes).

This trend was further amplified by the arrival of Chinese New Year mid-February.

Given the high percentage of Asian investors in early, emergent technology, as we approach CNY we typically see an increase in selling pressure triggered by the need to convert to FIAT to fund the holiday celebrations.

Regulation woes:
Whether you embrace regulation or resent its arrival, it’s a hot topic in the crypto-space at the moment; certainly responsible for some volatility. It’s almost intra-daily that each central bank appears to change their stance on cryptocurrencies and blockchain technology, it is this exact lack of clarity currently causing this volatility.

With crypto-regulation a hot topic across the globe, its looking ever so likely that a jurisdiction somewhere will draft an initial crypto-regulation framework. How it will work in practice; we shall have to wait and see...

On the one side, you have those free-market-cryptonomists who would argue its self-regulating and there is no need for regulation, or; you simply cannot regulate it in a traditional sense. On the other, you have the more traditional/institutional side driving the ‘need for regulation’ with various contradictory calls coming from the ECB, FED, BofE, SEC and other bodies. The speed of the matter is another issue; if/how and when are probably the current top questions on everyone’s lips at present.

The SEC has recently been involved with Goldman/Circles buyout of #Poloniex which would indicate near involvement. Likewise, this week they have launched an investigation into ICOs, however it remains to be seen if this is a deterrent or enforcement.

‘Dumb money’:
Due to the aforementioned reasons and the general infancy/immature stage at which the crypto- space is still in, there is a lack of ‘institutional money’ or smart money, which in layman’s terms simply means the longer term, high volume players, such as; family offices, pension funds, sovereign wealth funds etc.

The lack of 'stable funding' results in large price swings, knee jerk reactions typically in waves and ultimately very high volatility.

Since approximately 2016 we have seen Venture Capital inflows as they have the freedom and autonomy (less responsibility) to embrace the risk/reward of the industry, potentially generating huge ROI on new blockchain & crypto start-ups.

As we enter 2018 cryptocurrencies and blockchain technology are the hot topic and more institutional money and backing looks to enter the industry. However, till now this lack of smart money is why crypto markets react very irrationally and are considered ‘highly in-efficient’ by existing capital market standards.

When will volatility decrease?
Over time, its highly likely we can expect; increased regulation from known regulators, joint regulatory efforts, an increased diversity of investors, and ultimately a more mature crypto-market and investor outlook. We can also expect a substantial increase in usage & acceptance as the technology continuously improves and merchants are presented more accessible ways of using cryptocurrency as payment; of course, all having a positive effect on the price and ultimately a higher utility value.

While volatility looks to decrease with time, we can also expect a steady surge in the value of the cryptocurrency market as a whole. Just as global stock markets have given way to long-term hodlers*, so too will the cryptocurrency markets. At the very least, it appears to be something that is going to be here for good.

“The stone age has not ended due to the lack of stones, but because new technological advances have appeared.” - Oil minister in the Arab states.

This will be updated in due course.