The Volatility of The Cryptocurrency Exchange Wallet (longread)

By Jiun Ting Yong

The price of Bitcoin and its other cryptocurrency competitors will plummet; and after a few weeks, the price of Bitcoin will increase. These trends are normal for people who are involved in trading Bitcoin and other alternative cryptocurrencies, unlike investors who invested in Bitcoin for its value.

The major reasons why cryptocurrency is so volatile is because of bad news (which isn’t always true) that stops people from adopting Bitcoin. Trading in Bitcoin is unlike trading in stocks because Bitcoin is volatile to bad news — just recently, the American FBI had closed a criminal organisation that stored their assets in Bitcoin that took the American FBI years to track them down in the dark internet market for their drug trade. When the FBI shutdown the Silk Road marketplace, it caused the prices of Bitcoin to plummet. Then people wondered about the trust of Bitcoin among the investors.

As the prices fluctuated based on free market forces, the bad news lead to uncertainty, which lead to traders receiving the news and end up losing a lot of money.  However, some people recognised that the drop in prices was an opportunity to buy Bitcoin at low prices, then sell it with a huge amount of money when prices are ripe for them to sell.

The second reason why Bitcoin will fall is a breach of security of cryptocurrency wallet exchanges like the recent breach of security in the Ethereum wallet exchange company that caused the prices of Ethereum drop significantly — just like the Hong Kong bitcoin exchange, Bitfinex, that created a turbulent wave of confusion. It caused many traders to panic and sell off their cryptocurrency with the right prices to minimise their risk of losses. These breaches only became a cause of concern by people who questioned the protocols. As a result, people seem to be less confident about the usage and hampered them from adopting them as a form of currency for day to day transactions. This is because Bitcoin and other cryptocurrencies were built on open source software. Therefore, the protocol allows other independent software developers to change the source code of a protocol for a cryptocurrency.

Another major reason will be the tax treatment of an authority against Bitcoin and other cryptocurrencies, which are also affected by the volatility, too. This is because the governments began declaring that investing in cryptocurrencies and Bitcoin will be considered an asset. Therefore, they are subjected to taxations and those cryptocurrencies exchange wallets, like the London based cryptocurrency exchange wallet company, Luno, was subjected to Malaysian Inland Revenue Board for tax evasion investigations. However, offshore banking hub like Switzerland is massively adopting cryptocurrency as an instrument of investment and blockchain into their financial services system by incorporating new types of investment companies like a cryptocurrency assets management firm because they aspired to become the centre of cryptocurrency investments and blockchain. This move isn’t new because Dubai, UAE and Malta were adopting blockchain technology just like their counterparts, Japan, South Korea, as well as American banks in Wall Street.

Furthermore, the volatile of cryptocurrencies in the market was caused by foreign direct investments in high inflation countries like Argentina. This is because people can use Bitcoin to offset the high inflation rate by denominating them into Argentine Peso from outside of Argentina. Therefore, funders could earn a higher yield return on their investment. Also, the Venezuelan government did denominate their own cryptocurrency known as the ‘Petro dollar’ to raise some funds for to pay for their country’s debts that drove the country into a state of chaos; because the country was on the verge of bankruptcy due to excessive wastage of state’s finances.

Overall, all of these are the causes of what’s happening and what will probably continue happening, but it doesn’t really hamper people from adopting Bitcoin and other cryptocurrencies. This is because when you look closely, many people are adopting Bitcoin and other cryptocurrencies in a slow and fast pace dating a few years back after Brexit had gone viral, there were Bitcoin ATM machines popping up in London as well as in some parts of Australia. They are on the way to becoming mainstream where it will be denominated to the USD and it is going to happen as soon as we thought! The future is exciting and filled with massive innovation.

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