Can We Expect More Cryptocurrency Volatility?
The reason why we include cryptocurrencies in the topics that we cover here on Tek-Think.com, is because they are based on computer power or rather computer time that has been previously used to crack the code of a particular mathematical problem. Once solved the computer owner is rewarded with a Satoshi or portion of a Bitcoin
Put enough of these Satoshi (s?), together and you achieve a Bitcoin.
It takes energy to run computers and the faster they are the more energy they consume. This is my mind links the cost of creating a Bitcoin to both computer power technology and the cost of electricity.
Computers are getting faster and with the advent of quantum computing we expect to see speed increases of over 100 million times that of the laptop I am typing on.
What will happen when only very rich people or governments have access to quantum computers and A.I.based algorithms to create Bitcoins. Or maybe even to counterfeit them?
Can we expect to see even more volatility in the cryptocurrency markets? How will this effect real ( real?) currency around the world?
A sharp fall in the value of Bitcoin may cause other cryptocurrencies to crash, but is unlikely to have a significant impact on traditional assets, according to new research published in the journal Economics Letters.
Researchers from Anglia Ruskin University, Dublin City University and Trinity College Dublin examined the performance of three established cryptocurrencies – Bitcoin, Litecoin and Ripple – and analysed their relationship with a variety of other financial assets such as gold, bonds and stocks.
The study found that Bitcoin prices affect Ripple, with a spillover of 28.37%, and Litecoin (42.3%), while the highest spillover from a cryptocurrency to a “traditional” asset was Bitcoin to Forex (FX), at 15.25%. In reverse, the highest price spillover from traditional assets to a cryptocurrency – Forex (FX) to Bitcoin – is only 4.18%.
The study also found that the volatility of cryptocurrencies is significantly higher than that of other assets, and that Ripple and Litecoin have limited influence on Bitcoin, proving that Bitcoin is the clear leader in the cryptocurrency market. The research also suggests that Ripple and Litecoin have seen their values increased thanks to the rapid growth of Bitcoin.
Co-author Dr Larisa Yarovaya, Lecturer in Accounting and Finance at Anglia Ruskin University, said:
We identified that cryptocurrencies are relatively isolated from other financial assets, but are interlinked with each other.
This means a decrease in the price of Bitcoin is unlikely to decrease the price of gold, or negatively affect the stock market of US, but the strong links between Bitcoin and other cryptocurrencies mean that those markets will fall.
Our results support the position that cryptocurrencies are a new investment asset class and have a role in an investor portfolio, being highly connected to each other but disconnected from mainstream assets. However, they also contain their own idiosyncratic risks that are difficult to hedge against.