The cryptocurrency phenomenon has been the most discussed to topic related to financial markets this year. International experts have been discussing the essence and prospects of digital currencies.
Just 12 months ago, you could read about Bitcoin and other cryptocurrencies in financial editions. Today, all mass media are highlighting the topic in detail. Even housewives seem to be getting interested in digital currencies.
In case you don’t know, Bitcoin is the world’s first cryptocurrency. This year, it has been setting new all-time highs over and over again. Since early 2017, the BTC exchange rate has increased by as much as 1000%!!! Each Bitcoin rally is followed by a certain kind of panic and doomsday forecasts predicting financial bubbles that are about to burst. However, everything has been going the opposite way so far. They say big-scale investors are now getting increasingly interested in cryptocurrencies.
For instance, in August 2017, 70 major hedge funds announced their investments in Bitcoin. Today, the number has increased up to 120 hedge funds. Better yet, Bitcoin derivatives (like futures) are about to come into existence. The CME and CBOE have already announced that. Even NASDAQ is now ready to join in. it seems like big-scale institutional investors are about to enter the cryptocurrency market as well.
Cryptocurrency can be seen as an innovative asset. What do you actually compare cryptocurrencies to? Currencies, stocks, commodities? Jeff Curry, global head of commodity research for Goldman Sachs, shared his opinion with us during his interview to Bloomberg
To start with, Bitcoin has recently shown the trait that has been scaring away many of those big-scale investors. Specifically, we are talking about volatility. Indeed, cryptocurrencies in general and Bitcoin in particular have always been rather volatile, with a constant roller-coaster thing. He thinks that is a natural process for relatively young assets. Today’s Bitcoin market cap is $160-170 billion. On the one hand, that’s quite a lot. But on the other hand, these figures cannot be compared even close to the ones of gold. The gold market cap is $8300 bn. The point is, gold has been a reliable investment asset for centuries while digital currencies are babies with a couple of years of history. If digital currencies survive and last for decades, they may see their market cap boost and their volatility decline.
He compared cryptocurrencies to rare-earth metals like cobalt, lithium etc. Those commodities have also increased in value quire a lot over the last few years, and the prices are still going up from time to time. This market is also subject to low liquidity, which also leads to high volatility. For example, those metals went up in value instantly after the demand for electro-cars started increasing worldwide. However, after going up in value, they also started being rather volatile, almost like cryptocurrencies. So, the bottom line is, volatility is a infant disease typical of all low-liquidity assets. But cryptocurrencies are getting more liquid and they will definitely get rid of this disease over time.
