Bitcoin’s Low Volatility Might Mean Price Manipulation Is Waning
Since its inception, Bitcoin has exhibited a highly volatile nature. However, during the past few days, Bitcoin’s price volatility has fallen to the lowest level of 2018. The U.S. Securities and Exchange Commission (SEC) will most likely view Bitcoin’s calmer price oscillations favorably.
Low Volatility Signals That Investors Are Now Holding to Bitcoin
Bitcoin’s (BTC) 00 volatility has been decreasing recently. According to data provided by Highcharts, the Bitcoin volatility index for the latest 30-day estimate is 1.73 percent, and for the most recent 60-day estimate is 2.58 percent.
Legislators and regulators might view Bitcoin’s price stabilization as a positive sign. Investors may also be more likely to see Bitcoin as a potential replacement of gold as a store of value.
As FXEmpire financial expert Bob Mason put it, “The low volatility is also a statement that price manipulation has perhaps abated.”
Moreover, this new price trend indicates that investors are holding on to Bitcoin. According to Mason:
After wild swings and rollercoaster rides, Bitcoin looks to have settled into a long-term relationship with its investors, who are not speculating their days away and appear to be in it for the long haul.
On the other hand, traders might be the only ones who dislike smooth price fluctuations. Traders find sharp price swings, or volatility, in a financial asset to be quite attractive. As volatility increases, the potential to realize a profit more quickly also increases. Certainly, with higher volatility, the risk factor increases as well.
Regulators’ and Legislators’ Concern: Bitcoin Price Manipulation and High Volatility
Bitcoin’s erratic price trajectory might have been one of the main factors that motivated the SEC to reject ETF petitions. In this regard, the SEC has stated that it does not believe assertions that Bitcoin and Bitcoin markets are uniquely resistant to price manipulation and hence volatility.
For example, the SEC document explaining its second rejection of the Winklevoss Bitcoin Trust petition to trade the first ever Bitcoin ETF, refers to a commenter who noted that traders could manipulate trading on the Gemini Exchange because of low trading volumes, adding:
[…] The Trust’s documentation states that momentum pricing of bitcoin has resulted, and may continue to result, in speculation regarding future appreciation in the value of bitcoin, making the price of bitcoin more volatile.
Legislators also saw Bitcoin’s high volatility as pernicious. In July 2018, both the heads of both the SEC and Commodity Future Trading Commission had to attend a Senate banking committee hearing to explain the risks posed by Bitcoin and other cryptocurrencies’ volatility.
At the hearing, the regulators toned down senators’ concerns over the cryptocurrency’s “extreme volatility.” As Fortune reported, SEC Chairman Jay Clayton said:
Just recently the volatility in Bitcoin was not as great as the volatility we’ve seen in other securities, such as the VIX product.
Do you think Bitcoin’s recently reduced price volatility is good or bad? Let us know in the comments below!
Images courtesy of Buybitcoinworldwide (volatility index), Shutterstock.