Dear Reader,
Standard deviation is a common measure for risk used in finance. As can be seen from the graph on the link above, Bitcoin's price volatility has decreased from above 16 % in 2011 to 3.44 % as of 29th March 2021.
Even with this decrease, investing in Bitcoin and other cryptocurrencies is characterized with a high level of risk. Especially more peripheral cryptocurrencies outside Bitcoin, Ethereum, Lite coin, Ripple are characterized by high price volatility of their quotations in USD.
Another risk, characterized by dummy variable in statistics or value of 0 or 1, is that Bitcoin and other cryptocurrencies can be outlawed by governments and central banks. However, a similar thing can happen to companies as the case of Ant Financial recently clearly shows. The latter case happening in China.
That said, governments and leading central banks all over the world like the Federal Reserve, The European Central Bank, The People's Bank of China, Bank of Japan seem to have grasped the value that cryptocurrencies can bring to the economy by making the means of exchange, store of value and unit of account or the characteristics of money much more efficient. In addition, central banks are now planning of issuing stable coins or cryptocurrencies backed by the main world currencies themselves.
So the decrease of Bitcoin's risk or its volatility is a very good sign. I guess this recent fall in the risk of investing in Bitcoin is driven by the higher participation of financial institutions like hedge funds and asset management companies in the cryptocurrency market and especially Bitcoin.
Yes, individual investors provided the initial liquidity and risk taking in the cryptocurrency market, but the financial institution's participation will bring fundamental stability to the cryptocurrency market.
What is more, leading banks like Goldman Sachs and JPMorgan have installed even trading desks for Bitcoin or are having plans of developing the cryptocurrency market.
Yes, investing in Bitcoin and other cryptocurrencies is characterized by high risk, but the cryptocurrency market remains one of the few corners of finance where one can achieve several multiples on one's initial investment.
In short, the cryptocurrency market is characterized by higher risk, but also by higher potential reward than even small cap stocks.
Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn, Facebook etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed on the blog are Petar Posledovich's. Petar Posledovich does not guarantee the accuracy of the information presented on this blog and social networks. The information presented is "as is".
Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.
Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!
Respectfully yours,
Petar Posledovich
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