From the birth of Bitcoin in 2008 to the 4,000+ crypto tokens on the market today, cryptocurrency has had a slew of hurdles to overcome, but the one that is holding back mainstream adoption is the volatility. It’s really hard to plan a budget if you rely on Bitcoin being $10K one day, but the market drops to $6500 the next. Certainly there are plenty of stablecoins that are available or in development but is this the cure?
The cryptocurrency market first got widespread attention in 2017, from market insiders to the general public seemed to believe that prices could go nowhere but up. By 2018, everyone had changed their tune because of the massive crash that wiped out more than $600 billion in asset value almost overnight. Since then, however, the cryptocurrency market has revealed its true nature — speculative, untamed, and unbelievably volatile.
Most experts have predicted that cryptocurrency markets will stabilize as they mature, especially as stablecoins grow in popularity and influence. I’ve always wondered if volatility is just a market feature and whether it would eventually go away. If we identify what’s causing it, we’d be able to predict if it’s here to stay.
The Big Guns
Currently, the cryptocurrency market is increasingly dominated by a few large investors and institutions. Though it isn’t obvious at Bitcoin trading, where less than .08% of addresses control almost 65% of the whole market. That leaves the whole trading ecosystem vulnerable to price manipulation, as those with the power engineer price swings for their own advantage. Researchers at Imperial College London have discovered that pump-and-dump schemes executed by those with enough clout to do so may account for as much as $7 million in trading every month , this explains mysterious sell-offs in the market.
HFT and Market Manipulation
While the whales work their will on the market, there’s a whole other class of investors that get pulled along for the ride: the people who depend on automated trading and brokers. Investors are lured in with the promise of big returns and no matter what, victims are vulnerable to price manipulation. It’s an issue that even the older, more traditional stock market hasn’t managed to beat, and it’s under far heavier scrutiny than cryptocurrency markets are.
Fake Volume May Cause Volatility
On top of the outright market manipulation that seems like a fixture in the cryptocurrency world, there’s also the possibility that much of the market movement that investors base their trading decisions on is a complete fabrication. Bitwise Asset Management studied the Bitcoin market and found that as much as 95% of all trading volume in the currency is faked by the dozens of unregulated exchanges that comprise the cryptocurrency market. That can shape the perception of the value of the cryptocurrencies being traded.
It is clear that a market that is riddled with price manipulation, fake volume and amplifies every single movement, can’t be stable over time. It doesn’t matter how many stablecoins enter the fray, nor what real-world assets they’re linked to. One look at a historical price chart should be enough to prove that where Bitcoin goes, so goes the whole cryptocurrency market, so if something isn’t as volatile, it won’t be long before volatility creeps in.
– This article was originally posted at CryptoTraderNews
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