Navigating the Turbulent Nature of Crypto Cycles

Dec 12, 2022 | by Eszter Csenteri

Cryptocurrencies are volatile in nature. However, the speed and transparency from social media leaves investors, critics and fans in a frenzy grasping for the true value of Bitcoin, Ethereum, etc. Its high volatility and attention in the media, especially for Bitcoin, mirrors crypto’s struggles to find its place in the market. In 2016, Bitcoin caused uproar in the press when its value rose by 125%. In 2017, the price rose again by more than 2,000% and continued to soar and reach unforeseeable heights. In 2021, Bitcoin even managed to triple the peak price of 2017. But the new currency’s growth hasn’t always been a linear trajectory of success. Between April and June of 2022, Bitcoin’s value more than halved, falling from $45,000 to $20,000. An ecosystem called Terra-UST working to pair one crypto coin with one dollar collapsed in May, losing $60 billion worth of value and causing major ripples among crypto companies and leaders using Bitcoin. Companies specializing in crypto exchanges, such as Coinbase, announced layoffs. With these extreme changes in the value of crypto, investors and enterprise leaders are skeptical of integrating blockchain technology into their business or taking crypto assets seriously. Although the sudden price movements make it seem risky, Bitcoin’s volatility reflects the young industry. With time, the technology could overcome its growing pains and become a valuable asset for businesses and investors.   


A key metric economists look at when gauging a new currency is the volatility index. The volatility index, also known as Wall Street’s “fear gauge,” defines health volatility between 12 (considered low) and 20 (considered high). If a stock rises above 20, then the asset is said to be extremely volatile. Specialists have reported a steady increase of volatility in the market since the 1980s because of the rapid news cycles, increase in investors, and derivative markets (market for financial instruments). Crypto has been especially subjected to speculations in the media, which have fueled price swings and influenced the excitement for the novel currency. However, this effect is exaggerated even more, as crypto markets have less liquidity than financial markets and lack the infrastructure of big trading firms. Finally, most projects in the crypto industry are barely five years old. While the market forms around the technology, price swings are bound to happen as crypto finds its niche in the global economy. 


Crypto’s volatility still looks like it is on the trajectory of a pendulum, swinging full force left to right. Nevertheless, there are some signs of crypto markets maturing and settling down. Trading firms are beginning to evaluate the new currency more rigorously and integrating it into the market ecosystem. As investors become more familiar with the volatility, the effects won’t be as surprising and reach such extremes.  


With time, Bitcoin and other cryptocurrencies have the potential to find their space in the broader tech and economic world. As crypto projects strive to deliver valuable services to customers, the faith in these currencies will likely grow. Perhaps crypto could garner enough belief to become the main currency and revolutionize traditional financial systems.