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July 27, 2021

Cryptocurrency schism invites market volatility

By GlobalData Thematic Research

There is a huge and growing schism in opinions towards cryptocurrency, with many industry leaders making their views known over the past year. Luke Ellis, the chief executive of Man Group, the world’s largest listed hedge fund manager, recently said that cryptocurrencies have “no inherent worth”. Yet, Elon Musk and Jack Dorsey view cryptos as the future of currency and Musk has actively propped up the price of Bitcoin. This debate is not binary but has seen people place themselves on a spectrum from crypto minimalists to crypto maximalists, the latter viewing cryptos as the future of money and beyond.

This lack of consensus on the underlying nature and purpose of cryptocurrencies has been reflected in the market. Cryptos have been notoriously volatile, with even the major coins like Bitcoin jumping more than 30% in a single day. This price instability is derived from the fact that there are so many well-respected figures who completely disagree with each other on this topic. Given their stature and prominence of many of these commentators, it is difficult to decipher who will be right and who will be wrong. This arguably leads to what can only be described as “market mood swings”, where the prices for major cryptos see major periods of rapid increases and declines.

Volatility encourages cryptocurrency trading

This volatility has made cryptocurrencies great tools for trading. Whilst there are high risks involved, the speed at which the prices change mean there are huge rewards available too. This is something that Ellis agrees with, despite his negativity towards cryptos. He feels that these assets are great tools for trading. In fact, he views them purely as speculative trading instruments and even compared them to tulips, referring to the 17th-century Dutch financial mania, sparked from speculation around the price of a flower with almost zero intrinsic value.

However, given how money seems to follow the most recent trends in the crypto markets, these “mood swings” may become quite predictable. Yes, Bitcoin has not yet hit $100k as some predicted earlier this year. But when it troughed down below $40k in May 2021, it still hadn’t recovered by the end of July. And when the price crossed $40k earlier this year in early February, it stayed above that benchmark for more than three months, until mid-May. Despite the views of minimalists, the price has not tanked to zero just yet either!

The point here is that both cryptocurrency minimalists and maximalists are probably wrong. The true nature of cryptos likely lie somewhere in the middle. However, the major disagreements that are playing out in public are clearly being reflected in the price of cryptos. What that means for a long-term outlook, again, is up to speculation, but what is certain is that this will drive major trading gains in the near future as the prices remain volatile.

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GlobalData tracks real-time data concerning all merger and acquisition, private equity/venture capital and asset transaction activity around the world from thousands of company websites and other reliable sources.

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