Bitcoin traders were reminded today about price volatility when the price fell by almost as many dollars in a day as it had gained in a week.
Bitcoin soared above $11,000 Wednesday, only to shed $2,000 of the gains in a few hours.
The 18% drop spurred some to have “ah hah, it’s crashing” moments, but the resilient crypto started to climb back up soon after the sinking.
That kind of volatility may be par for the course for old school Bitcoin enthusiasts, but for the newbies who have been piling on in the wake of the soaring prices, it’s disconcerting.
The answer to the volatility issues is liquidity, industry players say, including a Goldman Sachs executive who has weighed in on the issue today.
Goldman Sach’s global head of commodities research Jeff Currie sees Bitcoin as a commodity that has qualities similar to those of gold. He told Bloomberg:
“I don’t see why there is all this hostility to it. Bitcoin is “not much different than gold” because it doesn’t have liability attached to it by definition, like a security.”
He addressed issues about Bitcoin’s volatility by pointing to liquidity.
“That lack of liquidity is what’s creating that volatility that has everybody concerned about bitcoin. Given that level of liquidity and the size of the market in gold, it will never have the same volatility as bitcoin.”
He noted that the available supply of gold is worth about $8.3 trillion, which represents “real liquidity.”
“Central banks control an enormous amount of the supply of gold, which does not make it a complete substitute between bitcoin and gold.”
Bitcoin futures to the rescue
The launch of Bitcoin futures contracts is thought to be key to helping to resolve liquidity issues. That’s because of the anticipation of institutional buyers joining retail buyers in gobbling up bitcoins.
Ripple’s head of XRP markets Miguel Vias spoke about the issue this week, saying liquidity solves a lot of risks, especially gap risks. He pointed out that gap risk is simply a “momentary lack of liquidity” and that when you don’t have liquidity, that’s when you have real problems.
CME Group and the Chicago Board Options Exchange are preparing their Bitcoin futures launches now. CME has said it wants to launch by the end of the year. They both are pending regulatory review.