When entering the cryptocurrency space there is one thing you find out immediately, the crypto market is very very volatile. Prices shoot up and down every day, making it possible to speculate. As the markets are unregulated, pump and dump groups and so called whales can manipulate the prices. But when the market cap gets higher and higher, prices will eventually get more stable as it will be harder to influence the prices. We can already check this by comparing the top crypto currencies, by market cap, and see if the currencies with the higher market cap are indeed less volatile, here are the results.
The problem with volatility
One of the use cases of cryptocurrencies is off course making payments. Bitcoin was the very first cryptocurrency and suddenly made it possible to transfer value. But as stated before, the price of Bitcoin and many other currencies shoot up and down, making it a less attractive payment method. Buying a pizza several years ago with Bitcoin could have bought you a Lamborghini nowadays. So stability perhaps is what the currencies need, at least on a day to day basis. I looked at the day to day price changes (absolute percentage) off the top currencies over the past 30 days and compared them. I also looked at the high and lows of the prices (with the low as base).
| Currency | Market cap | Average price change | High/low difference |
|---|---|---|---|
| Bitcoin | 167B | 3% | 5% |
| Ethereum | 80B | 5% | 7% |
| Ripple | 35B | 5% | 8% |
| Bitcoin Cash | 28B | 6% | 8% |
| EOS | 15B | 8% | 11% |
| Litecoin | 9.6B | 4% | 6% |
| Cardano | 9.5B | 7% | 10% |
| Stellar | 8B | 6% | 10% |
| IOTA | 6.7B | 7% | 10% |
| TRON | 6B | 7% | 12% |
| NEO | 6B | 7% | 9% |
| DASH | 6B | 5% | 8% |
As you can see it looks like the top cryptocurrencies are a bit less volatile looking at the past 30 day price changes. Bitcoin with the biggest market cap has the lowest price change difference also looking at the difference between the low and high price. As the market cap gets lower, the average price difference increases. But the difference between the high and low price increases faster, meaning the prices of these coins even variate on a particular day. To be mass adopted, I believe the prices of these coins will need to get more stable. Next time I will also compare coins with an even lower market cap and also over a longer period of time.
Good article. Vol does affect cryptocurrecies. It invites speculators and traders as a money making opportunity. It also prevents risk averse individuals from adopting cryptocurrency.
I just want to add a few points to complement what you have noted. Traditional financial markets are less volatile because various types of market participants are present. If we talk about currency markets, we have banks, traders, long term investors, corporate treasuries hedging future fx expenditure, and govts to name a few. Large participation allows for liquidity and large number of buyers and sellers with significantly capital at different levels. In fact traders and speculators are the smallest group and those who want to use currency being the largest. Crypto markets on the contrary is made up of traders largely and hence the volatility.
I think, stability will be followed by increased adoption and not the other way around.
Once adoption increased regulations are setup, real world use cases will also increase. If you look at international payments, someone wanting to send us dollars from europe would want to do it using bitcoin, its just that acceptance is also low. And given small transaction times, volatility is not the biggest problem. Acceptance is.
Well i agree, with acceptance, demand also increases and currencies will get less volatile. And indeed the crypto space cannot be compared to traditional finance, but is competing with it.
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