Why the Bitcoin rally has been less volatile

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Before the end of the year, the price of Bitcoin could cross $20,000. That would see it exceed the all-time high of $19,783.06 registered at the end of 2017.

What is more remarkable is the smooth ride back to the summit. Apart from the start of the bull run in March, when 30-day BTC/USD volatility reached a six-year high, the price of the leading cryptocurrency did not swing as wildly in recent years. Its 180-day counterpart registered a 23-month low in October as well.

All that means is that even if Bitcoin prices move up or down, they may not exhibit major deviations. It is a sign of a maturing market and likely due to the emergence of institutional players (last week, Mexican billionaire Ricardo Salinas Pliego claimed to have invested 10% of his portfolio in bitcoins). In time, the influence of retail investors will diminish.

Consider a trader who disagrees with the high Bitcoin price and believes it must fall. They can take a short position and express their view on the market. In the past, traders were known to have worked in tandem to influence prices in this manner, causing concern and alarm.

In the world of traditional finance, famous ‘short-sellers’ are controversial, as they release damning evidence in the hopes of discrediting a company. They expect to benefit from the fall in prices they engineer, as worried investors stampede to get out. However, they are also respected as an important component of the financial universe. Most short sellers, however, are not so strategic or vocal.

This year, Bitcoin’s rising popularity meant that a large number of naysayers appear to be putting their bitcoins where their mouths are. TokenInsight, a Beijing-headquartered crypto research firm, points out that the second quarter saw derivatives volume top $2.1 trillion, an increase of 165.5% from the same period in the previous year. The interplay of positive and negative voices is how all assets eventually find an efficient price.

Derivative exchanges have played a key role. There are at least 42 active ones right now, according to TokenInsight. Back in 2018, those of us at Bybit saw few players offering a user-centric portal dedicated to derivatives traders, whose needs are quite different from the typical long-term investor.

We feel that being able to take a position on a future price that cannot be easily influenced has also contributed to increased participation from institutional investors or prominent figures like MicroStrategy and Mexico’s Salinas. It gives them confidence that they are working in a familiar market. It ensures credibility for a given resistance level, a certain price below which an asset is not expected to fall.

A look at the futures market also gives them the ability to input historical, current and future prices in their proprietary risk assessment models that have stood firm in other volatile markets.

At Bybit, we are glad that the guardrails are being built for a new crypto economy. We are keen to support digital asset investors who we believe in the fundamental necessity for new types of financial instruments in the modern era.

Should Bitcoin cross $20,000, we are sure that their numbers will only grow.

The article is contributed by Ben Zhou, Co-Founder & CEO of Bybit