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How much of an issue is Bitcoin’s volatility?

Photo of: Nathan VDH
by Nathan VDH

Will institutional investments help mitigate Bitcoin’s volatility and increase its attractiveness? That’s not the feeling of an Oppenheimer executive or Fed Chairman Jerome Powell.

Bitcoin’s volatility remains a scarecrow for many investors. But for the Goldman Sachs research director, the cure could come from institutional investors. The more they invest in Bitcoin, the more the asset’s volatility will diminish.

However, this hypothesis is not unanimous. According to Ari Wald, head of technical analysis at Oppenheimer, the high volatility of the cryptocurrency will not disappear anytime soon. And this one warns.

“You have to be able to handle this volatility. It’s here to stay,” he says on CNBC. “With the upside reward comes a lot of volatility on a day-to-day and even week-to-week basis,” he adds.

And BTC’s fluctuations in February provide a perfect illustration. But this volatility does not mean the end of the crypto-asset’s growth, however. Last month, Bitcoin “peaked at about $58,000 and the next day it was down to $44,000. It was really volatile and has been consolidating since then,” Ari Wald comments.

For U.S. Federal Reserve boss Jerome Powell, there is no doubt that Bitcoin is “highly volatile”. Because of its unpredictability, he believes that the cryptocurrency cannot be “really useful as a store of value”.

The Fed director also disputes the possibility of Bitcoin finding its place as a means of payment. For him, cryptocurrencies are above all “speculation”. And if they are an alternative, it is to gold and not to fiat currency.

These different characteristics make them risky assets. And Powell issued a warning to investors. “I think with crypto-assets, the public needs to understand the risks,” he says.

The Fed chief is not opposed to digital currencies, however, at least stablecoins. But not on any terms though. “Stablecoins may have a role to play with appropriate regulation, but that role will not be to form the basis of a new global monetary system. “

As for other currencies, like Bitcoin, does their volatility doom them? For JPMorgan, the value of BTC can climb to $146,000, but only with less volatility to appeal to more institutional investors.

However, this volatility has largely subsided over the years. The average annual variations of Bitcoin are thus 69%, against 27% for silver, 13% for gold and about 20% for stocks, measures the director of strategy of the bank Morgan Stanley.

However, this indicator is far from being fixed, unlike precious metals. “Since the launch of Bitcoin, its volatility has decreased from an annual average of more than 400%,” Ruchir Sharma stressed.