Volatility – exposure to rapid and unpredictable change, especially for the worse. Also known as the fear index in application to the S&P 500, the volatility is defined in Finance as the degree of variation of price action trading, which is measured by the standard deviation of the logarithmic returns. As a measure of the degree of change of the asset price, the volatility is correlated with the tectonic shifts in the global economy that causes them.
The following text is a translation of the article To Mike on the Medium.
When investors are fearful, their actions tend to become inconsistent and illogical. Although a manic focus on the volatility of the S&P 500, a good measure of the global uncertainty can be volatility in the foreign exchange market. Currency volatility is able to indicate the turbulence and uncertainties in a specific country or in the world economy as a whole. Sometimes the trigger can be something as simple as a large fish accidentally swim into the small pond of liquidity. As, for example, in the case of lightning collapse of the AUD/USD and USD/JPY in January 2019 after the worst recession the S&P 500 over the decade.
As a measure of uncertainty, the volatility may represent, and to exacerbate the financial downturn and to undermine confidence in the economy or asset. But most importantly, strong price fluctuations can adversely affect the lives of millions of people and businesses in this economy. Although the lightning collapse of the yen and the Australian dollar, in 2019 represented only a decline of 4 percent in a few minutes, these changes can upset the balance of global trade economy.
During the financial crisis of 2008, the volatility of currencies of Group of ten (G10) soared to unprecedented heights. After the European debt crisis 2015 volatility G10 currencies sought to historic lows, despite the best efforts of Breccia in 2016. Has become too quiet? Or this stability calms the tension, ushering in a new era of optimism in the global economy?
Is there any safe haven to hide from an unstable economy?
However, volatile ash 2008 rebelled exciting new asset, occasionally eclipsing even the volatility the crisis of 2008. Bitcoinclaiming to be an alternative to Fiat currency system, has earned a reputation for its crazy volatility.
The volatility of bitcoin surpasses even the most frisky Fiat currency.
If you compare with currency pairs by type in USD/CAD or USD/EUR where the 10-day volatility even during the great financial crisis rarely exceeded 2 percent, how Bitcoin can compete as an alternative to Fiat currency? The volatility of Bitcoin is that in the quiet periods sometimes falls below 2 percent. Why would anyone want to use it as a daily currency, when the old Fiat currency so stable?
Volatility is a reasonable existential risk and the Achilles heel of Bitcoin. Defenders can claim that the cryptocurrency is still relatively new and so expect higher volatility. On the above chart takes into account only trades in BTC in 2015, as trade was not enough liquid and place in niche markets. Bitcoin to be taken seriously as a contender for the status of a global reserve currency must be a significant paradigm shift.
See also: Why rising and falling Bitcoin? The opinion of the founder 2Биткоина.
Either the volatility of Bitcoin is to be suppressed, for example, to market institutional market makers or shall occur an event of type “black Swan”, which will lead to a significant jump in the volatility of major world currencies.
In the coming years, courses of reserve currencies — Euro and dollar — will strongly fluctuate, the volatility of Bitcoin can seem a little more acceptable. But if the maturation of its market, Bitcoin will not cease to draw significant fluctuations in the graphs, the volatility of the largest cryptocurrencies will always be the logical subject of concern.
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