FINANCIAL SERVICES
The evolution of Bitcoin ’ s volatility While there ’ s a trickle of serious institutional capital into Bitcoin , broader institutional engagement remains tepid . The critical factor here isn ’ t just participation but the nature of it – whether institutions invest for long-term holdings or short-term speculative gains .
Institutional involvement could either mitigate or exacerbate volatility , depending on the nature of the participation , and right now it seems tilted toward exacerbating volatility , not stabilising the market .
Professor Samuel Ouzan says : “ The degree of connectedness among cryptocurrencies changes over time and is higher during periods of market uncertainty .
“ Increased connectedness leads to greater volatility spillovers , implying that during turbulent times , the interplay between cryptocurrencies becomes more pronounced , impacting Bitcoin ’ s volatility more significantly . Bitcoin ’ s role as a leader or follower in the cryptocurrency market also affects its volatility .
“ The evolving dynamics of Bitcoin mining also play a crucial role . As block rewards diminish and operational costs escalate , miners might be compelled to sell their holdings to cover expenses , particularly around halving events . “ This necessity can introduce additional volatility , affecting supply dynamics on exchanges . The decreasing incentive to mine could lead to shifts in the miner population , further impacting Bitcoin ’ s price stability .”
142 July 2024