Bitcoin (BTC) Rally Up, Rally Down, Wild Market Volatility is the Norm

Bitcoin (BTC) Rally Up, Rally Down, Wild Market Volatility is the Norm

$BTC, $BTCUSD

FLASH: Bitcoin (BTC) Not a Game for Casual Players

Financial markets experts agree that fast run-up in prices is a bubble. And the Big Q is always when/not if, its price will crash, and the effect of a crash? 

The Financial Stability Oversight Commission recently came out with a report listing challenges to financial stability, and digital currencies merited a very brief mention. According to the agency, virtual currencies have a “very limited” impact on financial stability. This is likely because the current Bitcoin ecosystem is fairly small. 

Learn more about Investopedia Academy’s online course Cryptocurrency for Beginners

Bitcoin has a renegade status in the financial services ecosystem. The increase in its prices has occurred within the confines of unregulated exchanges that are yet to pass scrutiny by regulatory agencies. Based on recent reports, the main players in these exchanges are individual investors and bots.

Big banks and investment firms have, for the most part, stayed away from the Bitcoin craze and their exposure to cryptocurrency markets, if any, is limited. While it is true that Bitcoin-related stocks have risen in valuation, their numbers are low.  

A measure of the finance industry’s caution is the relatively subdued response to CBOE futures trading even though Bitcoin’s price has jumped by more than 1,800% this year. Even as a clearing agent for CBOE Bitcoin futures, Goldman Sachs is reportedly demanding a 100% margin for Bitcoin trades.

Online publication Axios has come up with an estimate of $250-B as the monetary impact of a total Bitcoin collapse. But that estimate betrays an incorrect understanding of the utility and markets to cryptocurrencies. There is already substantial investment in blockchain, the technology underlying Bitcoin. And Bitcoin’s price movements suggest that it is emerging as an asset, aka store of value.

Cryptocurrencies are useful as a means of exchanging value within closed ecosystems.

That being the case, it will be some time before their utility is realized within mainstream applications. The current rise in prices for most cryptocurrencies is mostly the result of a ‘domino effect‘ from Bitcoin’s surge.

It is likely that a Bitcoin price deep dive will result in a correction in their prices too. It is also certain that the majority of cryptocurrencies that populate the current listings will disappear. And only digital currencies that have defined business models and clear utility within mainstream society will survive a crash. And that looks like Facebook’s (NASDAQ:FB) Libra.

Currently, Bitcoin is trading at 13,051.71+484.77 (+3.86%), as of 12:36PM BST, the market is open, and many players see it headed back to about 20,000 each.

Stay tuned…

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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