Discover how to capitalize on Bitcoin’s volatility and turn market ups and downs into profitable Bitcoin opportunities.
“Bitcoin’s seeming lack of correlation to market fundamentals marks it as, potentially, the ultimate hedging asset.”
Despite global turbulence, bitcoin has remained a shining example of financial innovation. Roundtable hosts R. Nelson and P. Boring discuss the complexities of bitcoin’s volatility and the opportunities it provides.
Nelson began the debate by discussing bitcoin’s volatile nature, emphasizing its significance as a unique asset in these difficult times. He acknowledged the worry that new investors may have owing to the perceived volatility, but advised that a long-term perspective may reverse that.
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P. Boring offered information about the nature of bitcoin’s swings. She underlined that, while bitcoin is volatile, this is to be expected given that it is the market’s best-performing asset. “Volatility is the price you pay for investing in the best performing asset,” Boring said, emphasizing the importance of investors focusing on the overall upward trend rather than short-term troughs.
She shared a personal tale about how a family member sought her help when bitcoin’s price decreased. She pointed out that, despite a recent drop to $57,000 from a high of $70,000, bitcoin has still increased 150% from the beginning of the year. This viewpoint emphasized the importance of understanding bitcoin’s overall growth trajectory.
She also shed light on key market actions, such as Germany’s $2 billion bitcoin sale and Wall Street’s simultaneous massive purchases of bitcoin ETFs. This market dualism, with some selling and others purchasing, highlights the bitcoin landscape’s dynamic prospects.
For P. Boring, bitcoin is the best investing opportunity of this generation. She claimed that it may be the best-performing asset in history, advising investors to buy bitcoin to gain on its possible future development.
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Bitcoin behavior
Beyond cryptocurrency, there is another phenomenon that has been upending the conventional wisdom of the academic world.
Bitcoin has not behaved like a financial asset should.
The price changes of the asset appear to be independent of the usual impact of market forces. Whereas the impact of market changes can be reasonably predicted by experienced investors for most asset classes, potentially allowing offloading and hedging for those with contingency plans, Bitcoin values do not respond predictably in the same way, denying the type of algorithm used by the majority of investors.
Some consider Bitcoin an ideal hedging tool. However, Dr. Koutmos’ research shows that this may not be the case.
This is another feature of Bitcoin, and presumably other cryptocurrencies, that may appeal to investors. Not only do they continue to provide good returns, though they are unlikely to grow at the rate seen in the last five or six years, but their apparent lack of correlation to market fundamentals positions them as the ultimate hedging asset: a safe place to sit out uncertain market volatility.
However, while comparisons of peak and lowest market prices show an asset exceeding most accessible financial assets by a significant margin, examining Bitcoin’s day-to-day swings reveals that it is an extremely volatile asset when viewed over short durations. This means that it is a high-risk option when assessed during moments of maximum volatility, called as’regimes’ by the investment community and economists.
How has the COVID-19 outbreak influenced opinions toward Bitcoin?
The COVID-19 epidemic has had a huge impact on people’s perceptions of Bitcoin, positioning it as a viable safe haven asset and inflation hedge. During the epidemic, central banks around the world implemented monetary injections and stimulus packages to help economies recover, prompting fears about inflationary pressures. As a result, some investors began to perceive Bitcoin as a store of value, comparable to gold, as a safe haven from the volatile traditional financial markets.
However, as Koutmos (2020) points out, Bitcoin may not provide the anticipated protection during extreme market shocks, such as a “black swan” event like the 2008 financial collapse. Bitcoin’s high volatility and association with other risk assets during market stress indicate that its potential as a safe haven is uncertain. While Bitcoin can provide diversification benefits, investors should exercise caution before depending primarily on it to protect against systemic risks.
Should you invest?
Experts advise caution. While the price of Bitcoin has fluctuated significantly over time, it has also exhibited incredible durability and growth potential. However, it’s important to realize that the cryptocurrency market is extremely volatile and can be influenced by a variety of factors such as global economic circumstances, regulatory changes, and investor emotion.
