Crypto wild ride throws spotlight on extreme turbulence

(MENAFN - Gulf Times) The cryptocurrency market is used to frequent and extreme speculative frenzy with Bitcoin standing as a perfect measure of the wild ride. Bitcoin prices swung as much as 30% in each direction last Wednesday alone, when it fell as low as $30,016, the least since January.  The extreme volatility carried into the weekend as the world’s largest cryptocurrency continued to whipsaw investors with double-digit percentage moves. A measure of implied volatility on Bitcoin comparable to the US equity market’s VIX indicator sits above 130, higher than the stock version has ever reached in 30 years. Thirty-day historical volatility in the coin is about 100, some seven times more than the S & P 500, according to a Bloomberg analysis. The turbulent stretch began after Elon Musk said Tesla would no longer accept Bitcoin as payment for its electric vehicles, citing the coin’s intensive energy use. And on Friday China reiterated a warning that it intends to crack down on cryptocurrency mining as part of an effort to control financial risks. China has long expressed displeasure with the anonymity provided by Bitcoin and other crypto tokens. Here are some high stakes involved in the speculative plays. Over half of the $410bn spent on acquiring current Bitcoin holdings occurred in the past 12 months, according to a report from blockchain analysis firm Chainalysis. About $110bn of that was spent on buying it at an average cost of less than $36,000 per coin.  The bottom line: The vast majority of investments aren’t making a profit unless the coin trades at $36,000 or higher, according to a Bloomberg report. ''The stakes are much higher now than they were in the past,” Philip Gradwell, chief economist at Chainalysis, said last week. ''This week’s price fall means that a lot of investments are now held at a loss.” There are a few factors responsible for the volatility.  Bitcoin is held by relatively few people, meaning that price swings can be magnified during low-volume periods. And the market remains hugely fragmented with dozens of platforms operating under different standards.  HSBC has now joined the growing league of crypto naysayers.  Europe’s largest bank has no plans to launch a cryptocurrency trading desk or offer the digital coins as an investment to customers, because they are too volatile and lack transparency, according to its chief executive Noel Quinn. There were earlier caveats too, vis-à-vis the cryptocurrency trading mania. Bitcoin investors need to be prepared to ''lose all their money,” European Central Bank governing council member Gabriel Makhlouf said late January.  The comments echoed scepticism from ECB leaders. The cryptocurrency is a ''highly speculative asset,” according to President Christine Lagarde.  Last Wednesday, as selling gave way to more selling, nothing could explain the frantic rout despite some proximate causes, leading to crypto losses in excess of $350bn. The bloodbath grew stronger when bitcoin fell below its average price for the past 200 days. In fact, even with the gyrations, Bitcoin is still up more than 250% in the past year. But the behemoth token is experiencing one of its rockiest times, with negative headlines leading to chain reactions. The extreme price swings throw the spotlight on an asset known for its turbulence.  MENAFN26052021000067011011ID1102139505