Bitcoin, previously known for its ‘wild price swings’, is now trading sideways which is both a blessing and a curse for investors, affirms the CEO of one of the world’s largest independent financial advisory, asset management and fintech organisations.
The analysis from deVere Group’s Nigel Green comes as volatility for major cryptocurrencies including Bitcoin and Ether are at multi-year lows – and have been for several months now.
He comments: “The price of Bitcoin, the world’s largest cryptocurrency by market cap, is still hovering around $29,400 which is a major combat zone between bulls and bears.
“Until recently, crypto was typically characterised for its wild price swings. But in recent months it’s been trading pretty flat, which is both a blessing and a curse for investors.”
The deVere CEO explains that as the cryptocurrency market matures, a decrease in extreme price fluctuations lends a sense of stability that is “crucial for its integration” into traditional financial systems.
“This newfound stability attracts institutional investors, who have been historically wary of entering the market due to its extreme price swings.”
He continues: “This stability is also a boon for businesses and consumers looking for a reliable store of value or medium of exchange.
“As Bitcoin’s price becomes more predictable, it becomes a more viable option for everyday transactions. Businesses can confidently accept Bitcoin as a payment method without the fear of losing significant value between the time of purchase and conversion to fiat currency.”
While stability is beneficial for mainstream adoption, the reduction in volatility has raised concerns among investors seeking quick, higher risk, higher reward opportunities.
Bitcoin’s earlier reputation as a highly volatile asset attracted traders who thrived on rapid price swings. With the decrease in volatility, such opportunities for substantial short-term gains have become less common.
“For investors who thrive on volatility, the calmer waters of the Bitcoin market can feel limiting. They must adapt their strategies to the new normal, focusing on longer-term trends and holding positions for extended periods. This shift can be challenging for those accustomed to quick turnarounds and constant market action,” says Nigel Green.
To harness the benefits of Bitcoin’s stability while mitigating the drawbacks, investors are advised to adopt a diversified approach.
While Bitcoin’s reduced volatility might limit short-term gains, it also reduces the risk of significant losses. By allocating a portion of their portfolios to Bitcoin, investors can potentially benefit from its long-term growth prospects while managing overall risk.
Earlier this month, the deVere CEO included Bitcoin as one of three areas in which he is continuing to put his money this summer. He said: “Not only does Bitcoin remain one of the best performing asset classes of the decade, I believe its performance will further strengthen. Both institutional and retail investors are increasingly seeing the value of a digital, global, borderless and tamper-proof currency and store of value.
“This trend will increase as adoption picks up further and as confidence grows again in the global economy.”
One potential catalyst that will increase volatility into the market is if, as Nigel Green now believes is likely, the US financial regulator approves spot Bitcoin Exchange-Traded Funds (ETFs).
This prediction comes amid media reports that the US Securities and Exchange Commission (SEC) could imminently give the green light to a swathe of applications from various major asset managers.
Spot ETFs invest directly in underlying assets, typically stocks or bonds, at the current market price (spot price). They aim to replicate the performance of a specific index or asset class by holding a portfolio of the actual securities that make up the index.
He says: “Should the SEC approve these filings, I expect the Bitcoin price will skyrocket.”
The deVere CEO concludes: “While the lack of short-term volatility can be frustrating for some investors accustomed to making quick returns, in the longer-term it will help drive sustainable price growth.”