by Joseph Young
The price of bitcoin has demonstrated extreme volatility over the past few days, after achieving new all-time highs for three consecutive days. Since reaching $11,441, BTC-USD stabilized in the $9,500 region, after dipping below $9,000 and dropping to $8,801.
Market Highly Optimistic
Since October, the official announcement of CME Group, the largest options exchange in the world, to integrate bitcoin and enable futures trading around the cryptocurrency, has imposed a significant impact on the short and mid-term price trend of bitcoin.
Some of the global finance industry’s most influential hedge funds, investment firms, and exchanges such as Nasdaq, Man Group, and Fidelity Investments, publicized their commitment on addressing the rapidly growing demand for bitcoin from the traditional finance sector.
On November 29, The Wall Street Journal reported that Nasdaq, the world’s second-largest stock market behind the New York Stock Exchange, will list bitcoin futures on its trading platform within the first half of 2018.
Shawn Matthews, chief executive of Cantor Fitzgerald & Co, also revealed that Cantor’s US Commodities and Futures Trading Commission (CFTC)-regulated options exchange would list bitcoin futures within a similar timeframe as Nasdaq’s listing of bitcoin futures.
Matthews added by stating that bitcoin is a new asset class that is here to stay, expressing his optimism toward the long-term adoption and growth rate of bitcoin:
“The asset class is not going away. If you look at the next level, it will be the institutions coming in and being larger participants in the marketplace, especially as liquidity gets better.”
Spike in Interest
Due to the expected flow of tens of billions of dollars in institutional money into the bitcoin market in the upcoming weeks, the demand and interest for the cryptocurrency has significantly increased.
But, because of the unforeseen and sudden spike in interest, investments from speculators who have limited knowledge in bitcoin and the cryptocurrency market have also increased. In South Korea for instance, the third largest bitcoin market by daily trading volume, kids and teenagers have begun to invest into bitcoin and other cryptocurrencies with their parents’ funds.
The situation in which kids make unauthorized investments with their parents’ money has grown to an extent in which the South Korean prime minister Lee Nak-yeon made a public statement on the issue. He stated that strict regulations on bitcoin exchanges are necessary, and tightening of Know Your Customer (KYC) policies is required.
Although bitcoin is a $179 billion market with mature businesses, robust infrastructures, and practical regulations imposed by various governments, it is still a rapidly growing market. As a result, the volatility rate of bitcoin tends to spike in periods of a price surge, unforeseen spike in demand, and abrupt increase in interest, triggered by a certain event.
In mid-2015, bitcoin and security expert Andreas Antonopoulos noted that volatility is bad even if the price is going upward, since it is not conducive to development of the overall industry.
“Don’t be too excited with recent bitcoin short squeeze and rapid price climb. Volatility is bad even when it’s going upwards,” Antonopoulos explained.
As tens of billions of dollars enter the bitcoin sector and the industry matures with better businesses and infrastructure, the volatility rate of the cryptocurrency will naturally decrease, and the market will become more stable over time.