Extreme cryptocurrency volatility: gold can never be a safe haven

For a while, the cryptocurrency seemed to be popular with investors looking to offset the impact of monetary inflation. Now, however, that money seems to be turning into gold. This is evidenced by the recent rise in gold prices. You can visit the goldcore website to see real-time gold prices.

Bitcoin, the king of cryptocurrency, has thrived for many reasons, but the threat of inflation is primary. That being said, Bitcoin itself is almost a law, even among cryptocurrencies. However, Bitcoin has collapsed right now and it looks like it will continue to fall to 75-80% of this market cycle. Faced with a crash, investors seeking safe haven assets are fleeing bitcoin, naturally turning to gold.

Of course, the demand for gold has dropped due to the trade in jewelry made by the coronavirus. This was compounded by feverish sales from gold custodians, who were in financial distress due to the pandemic. These reasons, of course, held back the growth of gold.

But everything has changed. The opening up of the global economy, if it continues on its current path, will revive the jewelry trade, leading to a significant recovery in gold demand. Perhaps people will want to use the savings accumulated during the pandemic to invest their money in something tangible. Something solid like gold.

Extreme volatility occurs when the price of an asset changes dramatically over a short period of time. Most cryptocurrency market analysts would agree that cryptocurrency volatility is a league of its own. There are no indexes for assessing the volatility of cryptocurrency prices, but a cursory examination of historical price charts shows that cryptocurrency prices have higher peaks and lower lows. These ups and downs are also much faster and more intense than assets in traditional markets. Let’s take a look at some of the reasons for the extreme volatility of cryptocurrencies.

Still in its infancy

Despite all the attention that cryptocurrencies have received in the media over the years, the market is still small compared to fiat and gold. The bitcoin market at its peak was just over $ 800 billion. Compared to the total value of the gold market, which is $ 7.9 trillion, and the stock market in the United States, which is $ 28 trillion, that’s a penny per dollar.

Because of the tinyness of the market, lesser forces can have a greater impact on price. If a group of investors decide to sell $ 500 million worth of gold, the gold price is unlikely to change. If the same thing happened to Bitcoin, the entire market would be destabilized and the price would plummet.

Digital only

Most cryptocurrencies are fully digital assets with no physical backing such as money or goods. That is, their price is determined solely by supply and demand. Many cryptocurrencies like Bitcoin have a fixed or predictable supply. Thus, the price is determined by how many people want to buy bitcoin right now.

The largest cryptocurrencies have no tangible assets to support their value, and there are no governments to force them to use them as currency. That is, their value is based solely on faith. People are more likely to sell bitcoin if they no longer believe its value will persist or continue to rise. This can bring down the price and convince others to sell.

Speculation

Many of the factors causing price volatility in traditional markets also apply to cryptocurrencies. The price movement in cryptocurrency and mainstream markets is fueled by news and speculation. However, as crypto markets have less liquidity than traditional financial markets, their influence is increasing. This is due to the lack of a healthy ecosystem of institutional investors and large trading organizations in the cryptocurrency markets. Since they both feed each other, increased volatility and lack of liquidity can be a deadly combination. Most cryptocurrencies, with the exception of Bitcoin, do not have developed and widely used derivatives markets. Cryptocurrency prices sometimes exhibit healthy volatility similar to that seen in the mainstream market due to the influence of day traders and speculators.

Technology

The development of blockchain and other alternative crypto technologies is still at an early stage. It will be some time before the market matures, as the idea of ​​crypto-based decentralized currencies was presented in the Bitcoin whitepaper only ten years ago. Despite this, several businesses have already implemented blockchain technology and are actively using it for marketing and promotion. AdEx, Brave and Steem are the most promising projects in this area. Since many clients value the transparency and other benefits of blockchain, learning about this technology in brand marketing can be quite rewarding.

When technological problems such as the problem of blockchain scalability are not resolved in the time frame that many predict, they put downward pressure on cryptocurrency. Or when the effects manifest themselves in the form of network congestion and high transaction costs.

Without a traditional basis

Although Goldman Sachs reopened its cryptocurrency trading platform in March, and JP Morgan is reportedly considering setting up a bitcoin fund, many institutions will still not touch the cryptocurrency.

On May 24, HSBC’s chief executive said the bank would not enter the cryptocurrency industry due to concerns about volatility and lack of transparency. This is a compelling and decisive indicator of what traditional market players think about cryptocurrency.

In contrast, other financial institutions have expressed reservations. Natwest said last month that it has “no appetite” for serving corporate clients accepting cryptocurrencies as it approaches the market with caution.

Even Elon Musk, CEO of Tesla, suddenly announced that the electric car maker would no longer accept bitcoin as a payment method due to the “environmental concerns” of the cryptocurrency. The 49-year-old entrepreneur made a stunning statement on Twitter, saying he is concerned about the impact of bitcoin mining on fossil fuels.

Conclusion

Compared to cryptocurrency, it’s easy to see why gold is a safe haven. Gold, according to experts, has two long-term benefits: protection from risks and volatility and increased asset value. It is a protective asset that shines in the long run. Even if it doesn’t always rise, an asset that remains stable while others fall is quite beneficial as a hedge. Plus, as more people ditch stocks in favor of gold, the price rises accordingly.

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