Cryptocurrency Volatility: Pros & Cons of The Immense Unpredictability

The reason for writing this article is the immense cryptocurrency volatility that we witness in present times. 

Ok, if you are a crypto hodler or a trader, you are probably checking the date of this article. It is because no one from the crypto space can stay calm at this type of news.

However, this feeling differs. Some feel butterflies in the stomach from the stress, others for the excitement. I wasn’t able to decipher why some find joy even when they are losing money. 

When I had my share of trading crypto, I found myself reading all the news that came up. At the time, I was a chief cartoonist in a tiny newspaper. Imagine, the hot press was all around me. In this case, knowing the news first helped me profit from predicting the change in price.

Although I can say that these changes worked for me well, the cons outweigh the pros. At least in my opinion.

Pro: Masses are Joining as Brokerage Companies Include Crypto Trading

Besides those sensibly investing their savings in cryptocurrencies, others do it solely for chasing profits.

From the perspective of the traders, there is hardly more enticing game to play. As crypto prices are skyrocketing and hitting dirt within a day, experienced traders can make a fortune.

On the other hand, when reviewing Japanese Candlesticks, one can notice that the game of scalping is going on, too. As you may know, this model of trading is profiting from small price changes. And in the case of high volatility – profits can be huge.

At the same time, losses can be devastating. But nobody talks about losses!

All successful trading stories include the story of some set of analyses. However, in the case of enormous volatility, it could be the first reaction on a twitter post!

Hence, there are more and more stories of success. And in the era of motivational posts at social media, one such story can catalyze thousands to start trading.

Con: Institutionalized Investors Disapprove Cryptocurrencies

To separate the term from brokers, these are institutional investors: 

  1. Endowment funds
  2. Commercial banks
  3. Mutual funds
  4. Hedge funds
  5. Pension funds, and 
  6. Insurance companies.

To be clear, many successful institutional investors love times of volatility. Take Warren Buffet, for example, who referred to Bitcoin as “rat poison.” At the same time, he made his fortune during the previous financial crisis.

So, why is not Warren Buffet taking advantage of present-day volatility? Or maybe he is, as you can be anonymous when buying Bitcoin.

With no intent to make a headline out of it (although I might), the point is that the effect is counter-intuitive. It is because this level of volatility scares investors off cryptocurrencies.

Another example of investors disapproving crypto comes from one of my favorite authors and businessman – Ray Dalio. 

If you haven’t read his Principles, I highly recommend his clear vision, applicable to everything. Because of this, I was sad for the fact that the crypto community characterized him as the enemy.

The reason behind this was his disbelief in the future of Bitcoin. In one of his interviews, he says that Bitcoin “is running around like crazy for reasons that you don’t understand.”

Con: Financial Losses Shed a Bad Light

Seemingly, many that don’t understand the underlying blockchain technology flocked to crypto investments. 

Not long ago, many followed the Bitcoin craze by even mortgaging their houses. Since these folks didn’t have a trader’s stomach, many lost considerable portions of their savings. 

Followed by the news of their grim faith, public opinion is molding into fear, distrust, and avoidance.

Of course, there is a phrase “there is no such thing as bad publicity.” Following these lines, any mention is good for the higher cause of crypto acceptance. 

Still, Bitcoin had a lot of talks connecting it with terrorism and money laundry. I don’t see this leading to approval in the future.

Con: Goes Along With the Claim that Crypto Could Crash to Zero

Someone trying to perform fraudulent activities follows any dealings with money. 

Whether fraudulent or not, someone selling a considerable chunk of crypto can turn the market too close to zero. There are numerous reports on hacking the exchanges, but even simple selling can do the trick.

And this amount doesn’t have to be enormous. Seemingly, it is enough to sell only a few Bitcoins to cause the price crashing at some of the exchanges. 

One of these examples is the sudden crash of Bitcoin on Binance, one of the leading exchanges. One act of selling $60,000 worth of Bitcoin caused the price crashing to $689. At the time, that number was ten times lower than it was on other exchanges!

Conclusion

Again, I made you check the charts. Well, at this point, it is just a fantasy. Like those manga characters that I am drawing. 

But unlike the fantasy world, where we are assigning mana and coins to our characters – this is real money. Unless the whole blockchain idea is a utopian fantasy, there should be some security.

It is funny to notice that blockchain is all about the security of transactions. Yet, you are not secure from the crypto going under. Of course, a viable option to battle this is to diversify your portfolio.

As the cons outweigh the pros, there is no doubt that volatility is not doing it right for crypto.

If blockchain tends to change the world, it should solve the issue of cryptocurrency volatility. This way, it will change the world for the better.

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