Bitcoin's liquidity and volatility

[deepskydiver]

For most of bitcoin's existence, what appears to be volatility is just the market trying to determine the price of a new asset. But even as it's become more widely adopted it seems that the biggest downward driver on price is bitcoin's liquidity.

It can be so instantly and easily turned into cash. 24x7. So anyone financially compromised turns to their most liquid asset: bitcoin.

When markets drop in property, stocks, forex or even altcoins - bitcoin drops. From FTX to Japan raising interest rates just a quarter of a percent. A lot of people turn their bitcoin into dollars and there's a dip.

Worse, because it's expected now, people sell to avoid the paper loss.

I'm interested to hear people's views on this trend and if, how and when the pattern might be broken.

And is particular, has it kept bitcoin's price lower than it otherwise would be, or are prices recoveries 'complete'?

[SquirrelJulietGarden]

For most of bitcoin's existence, what appears to be volatility is just the market trying to determine the price of a new asset.

New asset?

I am sorry by disagree with you but after more than 15 years since January 2009, Bitcoin is no longer a new asset. This fact proves by a factoid in Bitcointalk forum.

Bitcoin is no longer in an experimental mode

The version number is not an indicator of experimental or beta status.

Bitcoin Core still (intentionally) contains a line that says "this software is experimental". The line saying that Bitcoin Core is beta software was removed in 2014.

When markets drop in property, stocks, forex or even altcoins - bitcoin drops. From FTX to Japan raising interest rates just a quarter of a percent. A lot of people turn their bitcoin into dollars and there's a dip.

Even altcoins?

You are saying opposite to the truth. Altcoins are affected by Bitcoin up and down but Bitcoin is not affected by altcoins up and down. Altcoins depend on Bitcoin for their trends but Bitcoin leads cryptocurrency market includes thousands of altcoins.

Bitcoin has nothing to do with Terra or FTX collapses. They have own businesses with bad capital and risk management so they collapsed.

[deepskydiver]

You seem to want to score points rather than discuss which is frustrating.

I am sorry by disagree with you but after more than 15 years since January 2009, Bitcoin is no longer a new asset. This fact proves by a factoid in Bitcointalk forum.

English doesn't appear to be your first language, so let me explain: compared to stocks, gold and foreign exchange - bitcoin had for many years been an asset that the financial sector has considered relatively 'new' and struggled to price.

You are saying opposite to the truth. Altcoins are affected by Bitcoin up and down but Bitcoin is not affected by altcoins up and down. Altcoins depend on Bitcoin for their trends but Bitcoin leads cryptocurrency market includes thousands of altcoins.

Bitcoin has nothing to do with Terra or FTX collapses. They have own businesses with bad capital and risk management so they collapsed.

Again - please read the original post instead of arguing with a point I didn't make. Bitcoin is affected (for example) when any collapse results in forced sell off of bitcoin assets. I didn't say it was affected by the price movement of altcoins themselves.

[Solosanz]

So what? I don't understand why you think the availability to trade Bitcoin in 24/7 is a downside. That's the beauty of decentralization and free market, you can send Bitcoin whatever you want and whenever you want, you can also spend it or cash out your coins.

If you're looking for centralization that can restrict your activity, go for stock, fiat etc.

[Poker Player]

So anyone financially compromised turns to their most liquid asset: bitcoin.

That is false, it seems to me that you do not understand the concept of liquidity.

There are many definitions of liquidity, but if we go to investopedia:

Cash is the most liquid asset possible as it is already in the form of money. This includes physical cash, savings account balances, and checking account balances.

In some cases liquidity and cash are used as synonyms. But definitions aside, Bitcoin is not the most liquid asset. It is more so than traditional investments because its market works 24/7/365 but it is not more liquid than my savings account where I have the money available and if I want in a few seconds I transfer it to the main account and from there I withdraw cash at an ATM or make electronic payments.

So what? I don't understand why you think the availability to trade Bitcoin in 24/7 is a downside. That's the beauty of decentralization and free market, you can send Bitcoin whatever you want and whenever you want, you can also spend it or cash out your coins.

It's an upside, actually.

[adaseb]

Bitcoin has lower liquidity on weekends, its just the way it is. Most of the time there isnt much action on weekends anyways but if there is a large event then it can lead to a huge dump. Many traders around the world take the weekend off and hence there is less liquidity and this is why the volatility can go up.

Bitcoin lately is more stable and less volatile than many stocks, look at stocks like NVDA or INTC, these are huge mega cap stocks and look how volatile they have gotten in the recent weekends, bitcoins lately has more liquidity to control its sudden moves.

[deepskydiver]

So anyone financially compromised turns to their most liquid asset: bitcoin.

That is false, it seems to me that you do not understand the concept of liquidity.

There are many definitions of liquidity, but if we go to investopedia:

Cash is the most liquid asset possible as it is already in the form of money. This includes physical cash, savings account balances, and checking account balances.

In some cases liquidity and cash are used as synonyms. But definitions aside, Bitcoin is not the most liquid asset. It is more so than traditional investments because its market works 24/7/365 but it is not more liquid than my savings account where I have the money available and if I want in a few seconds I transfer it to the main account and from there I withdraw cash at an ATM or make electronic payments.

So what? I don't understand why you think the availability to trade Bitcoin in 24/7 is a downside. That's the beauty of decentralization and free market, you can send Bitcoin whatever you want and whenever you want, you can also spend it or cash out your coins.

It's an upside, actually.

I don't think you're capable of understanding the nuance of this discussion, unfortunately.  Cash is not kept in large amounts as investments, so sadly your ATM balance or cheque account isn't likely to sway markets..

I said liquid asset and your argument initially is that I don't understand liquidity. Followed by you comparing cash to a liquid asset. Wait - what? Cash IS liquid.

Then you finish your misunderstanding by explaining the upside that bitcoin can be traded so easily. I wonder if another word for that might be - liquid? Yeah that's it.

[deepskydiver]

So what? I don't understand why you think the availability to trade Bitcoin in 24/7 is a downside.

I didn't say 24/7 trading is a downside.

I wrote that the ease of conversion - including when other markets are closed - can result in price drops in situations where people need to cover a loss. It's an artefact of the financial system it sits in.

[Alpha Marine]

English doesn't appear to be your first language, so let me explain: compared to stocks, gold and foreign exchange - bitcoin had for many years been an asset that the financial sector has considered relatively 'new' and struggled to price.

SInce you're calling bitcoin 'new' compared to other assets, you should have used the word "relatively". When you say "bitcoin is a relatively new asset" your readers will understand what you mean. For someone with English as their first language, you should know this.

But even as it's become more widely adopted it seems that the biggest downward driver on price is bitcoin's liquidity.

Are saying adoption has a negative impact on Bitcoin? If that's what you're saying then I disagree. Even the volatility of Bitcoin is something that makes it stand apart from other assets. Bitcoin is $58k today, if not for volatility people like me wouldn't be able to buy it at a cheaper price when it was $30k. If the lowest bitcoin can drop to for instance is $57k, there would be no need for holding bitcoin for a long term and it wouldn't be an asset that gives good profit if the highest it can grow to is let's say $60k. Volatility is part of what makes bitcoin a good asset.

As for adoption, Bitcoin is a currency. Of what use is a currency if only a couple of people use it? The more the adoption, the more people accept it as a means of payment.
For P2P transactions, how is that going to be made easy if you have to search the world for people who have BTC and want to exchange?
Both volatility and adoption are good features of bitcoin in my opinion. The problem is, we want it to keep going upwards, forgetting that volatility works both ways.
 

[deepskydiver]

Are saying adoption has a negative impact on Bitcoin? 

No, I'm looking for a discussion around the slides in other markets which cause sell-offs of bitcoin.
It feels like bitcoin is oversold whenever other markets hit a rough patch.

[Ruttoshi]

Are saying adoption has a negative impact on Bitcoin? 

No, I'm looking for a discussion around the slides in other markets which cause sell-offs of bitcoin.
It feels like bitcoin is oversold whenever other markets hit a rough patch.

You are guessing and not sure of technology fact. Bitcoin is an asset which demand and supply with other economical factors controls the price and no one can fully understand what makes the price to dip and pump. I know that FUD and FOMO can also contribute to the price movement of bitcoin.

When there is high level of inflation, it most affect the price of bitcoin because investors might sell part of their bitcoin for other purposes and new investors might not have enough funds to invest in bitcoin which will make the price dump. You should also know that currently bitcoin is one of the best asset that gives high profit in the long run than any other asset.

[HeRetiK]

It's an interesting thought, but I don't think Bitcoin's liquidity is that much of a factor when it comes to its correlation with the stock market (or rather, the stock market lows). Arguably its relatively high liquidity and 24/7 market is actually alleviating volatility somewhat, e.g. the Nikkei 225 Monday crash would probably have been less pronounced if there'd be price discovery during the weekends as well. (of course after-hours trading exists, but trading volume seems to be rather limited)

I think the far larger factor and simpler answer is that Bitcoin is still being viewed as a high-risk asset. As such it gets the boot first when managing risk.

[deepskydiver]

I think the far larger factor and simpler answer is that Bitcoin is still being viewed as a high-risk asset. As such it gets the boot first when managing risk.

Yes I'm sure that is a significant factor. And yet it's also considered a long term asset, so jumping out when the market moves (as it will of course) seems odd.

[Catenaccio]

Liquidity is more about altcoins not about Bitcoin. With Bitcoin, a common and accurate term is Trading volume, not liquidity.

Many years ago, when Satoshi Nakamoto was asked about transaction volume of Bitcoin and his anticipation in future, there was an answer that is still valid today.

Right.  Otherwise we couldn't have a finite limit of 21 million coins, because there would always need to be some minimum reward for generating.  In a few decades when the reward gets too small, the transaction fee will become the main compensation for nodes.  I'm sure that in 20 years there will either be very large transaction volume or no volume.

The answer is about transaction volume, not trading volume but if people use Bitcoin for more transactions, there will be higher demands to trade it so trading volume will become higher consequently.

[EluguHcman]

For most of bitcoin's existence, what appears to be volatility is just the market trying to determine the price of a new asset. But even as it's become more widely adopted it seems that the biggest downward driver on price is bitcoin's liquidity.

Understanding Bitcoin liquidation, it is the significant narrow determining the values of Bitcoin market square which is being tied on volumes of adoptors.
The liquidity of Bitcoin is not as fact of being a barrier in the market but a volatility movement that holds its purchases affairs effectively.

Although we have high liquidity which creating positive impacts and low liquidity for negative impacts for traders and investors cited in the market while executing transactions.

So, be aware that this liquidity characteristics on Bitcoin market is either attracts Downwards or Upwards that is why Bitcoin is a volatile currency.

When markets drop in property, stocks, forex or even altcoins - bitcoin drops.

Bitcoin is shaped to have its economy challenges at its blockchain which is the liquidation and number of adoptors and not tied on the stock or economy structures.

[ranochigo]

Bitcoin is no longer in an experimental mode

The version number is not an indicator of experimental or beta status.

Bitcoin Core still (intentionally) contains a line that says "this software is experimental". The line saying that Bitcoin Core is beta software was removed in 2014.

Seems like that quote actually says Bitcoin's state as an experiment, beta or whatever hasn't changed. That contradicts your statement.

The price movement isn't a result of liquidity, or the lack thereof. The problem is that Bitcoin is quite speculative in nature and that any news, good or bad will induce traders to either purchase or sell Bitcoins. This is seen quite evidently by the policies enacted by the banks recently, or spikes and dips when regulations are being announced. Traders speculate and either purchase or sell their Bitcoins as and when they deem fit. This trend can't be broken so long as traders are treating it as a speculative asset. I don't see it as a problem that should be solved, thats a feature of the free market.

[cryptomaniac_xxx]

Worse, because it's expected now, people sell to avoid the paper loss.

I'm interested to hear people's views on this trend and if, how and when the pattern might be broken.

And is particular, has it kept bitcoin's price lower than it otherwise would be, or are prices recoveries 'complete'?

That's wrong mindset though, you don't suffer any losses if you don't sell, what you see in your portfolio is just paper loss. So why sell? This is one beauty of the market, it is open 24x7x365. And with that you can trade and make money or loss it in the end, so the volatility is your friend here and as long as you know how to take advantage, then you can profit.

It will recover eventually, or if you mean that the price is going to grow. We are in the post-halving already, and with that, we are expecting that the price will go on a parabolic rise or we will be a bull run and the prediction is that it can grow as high as $100,000 or even higher this cycle.

[HeRetiK]

I think the far larger factor and simpler answer is that Bitcoin is still being viewed as a high-risk asset. As such it gets the boot first when managing risk.

Yes I'm sure that is a significant factor. And yet it's also considered a long term asset, so jumping out when the market moves (as it will of course) seems odd.

Two possible explanations:

(1) Many investors don't really see Bitcoin as a long term asset yet. This is probably due to the fact that it is still a relatively young asset class.

(2) Investors trying to re-renter the market at a lower price point, assuming that Bitcoin continues falling based on its relatively high volatility.

Of those two I believe (1) to be the bigger contributor; and the only solution that, I'm afraid, is time.

[deepskydiver]

(1) Many investors don't really see Bitcoin as a long term asset yet. This is probably due to the fact that it is still a relatively young asset class.

(2) Investors trying to re-renter the market at a lower price point, assuming that Bitcoin continues falling based on its relatively high volatility.

Of those two I believe (1) to be the bigger contributor; and the only solution that, I'm afraid, is time.

I agree. And it is frustrating to see so many who don't recognise it as the hard asset it is: fleeing it quickly when under pressure.

I believe a time will come when most investors sell it last, not first.

[Doan9269]

For most of bitcoin's existence, what appears to be volatility is just the market trying to determine the price of a new asset. But even as it's become more widely adopted it seems that the biggest downward driver on price is bitcoin's liquidity.

Don't have a misconception of the two terms between an asset and liquidity, no matter the investment and market liquidity with bitcoin, people will still prefer it than fiat or any other source because of the way bitcoin is made decentralized for them to be able to control over the currency, the market liquidity is just one of the parameters in which shows more on how the adoption is increasing by the number of its investors and the asset worth withing a particular time frame.