Bitcoin, ethereum price volatility shouldn’t put off investors, experts say

on Jul 12, 2017
Updated: Sep 19, 2019

The high level of price volatility for digital currencies like bitcoin and ethereum has kept many investors sceptical about the potential of the nascent crypto sector.

Bitcoin and ethereum have gained ground at a rapid pace this year, riding a wave of newly-found enthusiasm for cryptocurrencies among investors. Yet the two flagships of the crypto market have both seen sharp declines after peaking to their respective all-time highs.
Yesterday the ethereum price fell below $200 for the first time since May. The cryptocurrency has fallen more than 50 percent since mid-June, when it hit an all-time high of over $400. Meanwhile in May, a price correction for larger rival bitcoin wiped off nearly $4 billion in its market value, CNBC notes.

However these wild price swings shouldn’t discourage investors, according to the CEO of Chinese bitcoin exchange BTCC, Bobby Lee. He argues that such volatility is normal as the true value for these assets have yet to be discovered.
“It’s not a problem,” Lee said on the sidelines of the Rise conference in Hong Kong, as quoted by CNBC. “If you think about it, the volatility is natural for an asset class that is so new. There’s no price discovery for it (yet).”

He added that as people have yet to discover the true value of an asset like bitcoin, they tend to trade them at a certain, discounted level before the market realises that it could be worth more.
The popularity of digital currencies is growing, which is in part due to countries and companies taking a closer look at the technology that underpins them. For example, in April Japan became the first country in the world to approve bitcoin as a legal payment method. Other countries such as Russia and China are also looking at introducing new rules to regulate the sector.

CNBC quoted Dave Chapman, managing director of Hong Kong-based commodities and digital assets trading house Octagon Strategy, who said that the “[w]e’re now sort of at … a tipping point, where people are now considering bitcoin or ethereum or digital assets as more mainstream”. He pointed out that many of his firm’s clients are “actually very comfortable” with using bitcoin or ethereum to further diversify their investment portfolios.
Chapman added that despite the price volatility for digital currencies, the returns on these classes remain extremely attractive to investors. He pointed to the unprecedented historic performance of the sector, saying that while it’s “obviously not representative of future earnings”, it does appeal to a lot of people.
Chapman also said that while many investors may not yet be fully convinced about the potential of cryptocurrencies, they will still invest in the sector because of the fear of missing out.
“We get a lot of people who are like ‘You know what? I still don’t believe in this experiment — I’m not really a believer, but I’m tired of sitting on the sidelines and missing out.'”

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