Bitcoin and cryptocurrency markets are highly volatile and, according to new research, incredibly unpredictable, appearing to move independently of most traditional or expected indicators.
The bitcoin price, which has doubled so far this year after recording heavy losses throughout 2018, is hovering around $8,000 per bitcoin. Most other major cryptocurrencies, including ethereum, bitcoin cash, litecoin, and Ripple’s XRP, have also made significant gains in recent months.
Now, it’s been revealed that bitcoin and cryptocurrency markets do not respond to any of the things that usually move traditional currencies, stocks and shares, or commodities, data provider Indexica has found.
Bitcoin has swung wildly in price over recent months, exploding higher in April after months of declines.
“We tested bitcoin and other major cryptocurrencies including ethereum and bitcoin cash in the same way we’ve tested popular stocks and traditional currencies,” said Zak Selbert, chief executive of Indexica.
“From our extensive research, and we’ve done more testing around bitcoin and cryptocurrencies than we have for pretty much any other asset we’ve analyzed, it simply appears the bitcoin price and crypto markets just don’t respond as we would expect them to.”
Stocks, traditional currencies, and commodities generally move on company announcements, government policy, and technological developments, while bitcoin and cryptocurrency prices do not, according to Indexica.
It’s been suggested that the bitcoin and cryptocurrency market’s relatively young age could be behind the difficulties in pinpointing what’s caused market moves.
“As we’re dealing with an emerging asset class, crypto evaluation metrics are still largely being developed,” said Mati Greenspan, senior market analyst at brokerage eToro. “Stocks, bonds, currencies, and commodities all have decades if not centuries of price discovery, so analysts more or less know what to expect.
“The crypto market has only begun to mature in the last two years, so we don’t have any of that. What does work well for crypto analysts are simple technical analysis tools like support and resistance points, especially psychological barriers, as well as sentiment, trend, and above all momentum indicators.”
“Bitcoin and crypto prices are all about excitement or lack of,” said Glen Goodman, a veteran trader and author of investment advice book, The Crypto Trader. “Nobody really knows for sure whether or not bitcoin will become a major store of value like gold or even a new global reserve currency like the dollar. So any news short of an outright global ban of bitcoin tends to have little lasting impact on bitcoin’s price.
“For example, China banned initial coin offerings and bitcoin exchanges in September 2017, which was a huge blow as China was the epicenter of crypto development. Yet within a few weeks, bitcoin’s price reached another all-time high!”
Volatility has, meanwhile, returned to the bitcoin market recently, with the bitcoin price recording daily moves that appear to mimic moves last seen at the end of 2018. The daily price change for the month of May averages 4.7%, compared with 3.5% in April and 1.1% in March, according to data compiled by Bloomberg.
Earlier this month, however, Indexica found bitcoin has matured as an asset and there had been a “coming of age” for bitcoin over the past few years, based on the study of the language used in thousands of text documents.
Indexica found bitcoin now is being spoken about in the same way as a company stock, with those in the industry increasingly looking ahead to future developments and less back to the heyday of 2017.
This latest research was designed to examine what has caused the wild swings in the bitcoin price by analyzing data from things like news articles and white papers.
The bitcoin price fell sharply before recovering ground over the last year, though attempts to analyse what exactly moves the price have failed.
“Sadly, it appears that if you want to know what’s moving the bitcoin and cryptocurrency markets, we’re not the right people to ask,” Selbert added. “Though I don’t think anyone could make a better attempt than we have.”
The bitcoin price rose from under $1,000 per bitcoin to almost $20,000 throughout 2017 before losing more than 80% of its value last year. A partial recovery so far this year has restored some investors’ and traders’ faith in bitcoin and cryptocurrencies.
The epic 2017 bitcoin bull run is thought to have been triggered by expectations institutional investment in the bitcoin and cryptocurrency market was imminent but when that failed to materialize in the way many thought it would, the market pulled back sharply.
Some think the latest bitcoin price rally over the last few months is down to interest in the cryptocurrency industry from Silicon Valley tech giants, including social network group Facebook.