Examining the nature of Volatility in Cryptocurrencies

By Raghav Sawhney

Introduction

Cryptocurrency as a whole value somewhere on the up skirts of 202 billion USD which justifies the curiosity behind studying price fluctuations and the various underlying reasons behind it. The word cryptocurrency has been thrown around a lot this past year due to the recent cryptocurrency bubble which occurred around spring of 2018 where the price of a cryptocurrency known as “bitcoin” skyrocketed to 20,000 USD per unit. To get a slight idea of just how popular cryptocurrencies are becoming the cryptocurrency known as bitcoin had $2 billion worth of transactions per day which was a 10 time increase of the previous year.  

As the world changes and technology advances there is always a structural change in a system which completely revamps how day to day activities will take place. Bitcoin has a great future but not in this form. To grow their businesspeople of Dubai prefer to buy bitcoin in Dubai.

It is important to first understand what exactly a cryptocurrency is before delving into the underlying objective of the thesis. In simple terms, you can see cryptocurrency as E-money which in essence exists online on computers and has no physical form or government backing or regulation. Since there is no backing the price of these currencies are determined through market forces of supply and demand, the functions a specific currency may provide, or any ease of payment for merchants. In other words, the price of these currencies depends on what the market dictates it is worth.

Detailed insight of volatility in this market

Cryptocurrency is a blockchain based electronic currency which, in the future, can be used as a mainstream form of payment. However, they are associated with instability and large seemingly random fluctuations in their prices. Confidence in this type of new currency must be developed in order to ensure profitability. But, in order to do this a better understanding of the market and the currency itself must be done. The research can only properly begin once there is a greater understanding of the topic in depth. As stated earlier there is evidence of the existence volatility within the cryptocurrency market. 

An article titled “A possible foundation of future currency: why it has value, what is its history and its future outlook” came out which gave the now usual information about cryptocurrency and bitcoin but where it stands out is that in this paper the author introduced us to the concept of a blockchain attack and in depth understanding of a “51% attack” but this is a highly unlikely scenario because bitcoin mining protocol already has a mechanism built into it that switches mining pools after some duration not allowing for such control of the blockchain to happen and avoid consequences like the double spending problem. 

Framework

The relationship between returns in the crypto market, risk in investing and exchange rate stability have been studied comprehensively, and as a result, two empirical models are constantly used when attempting to determine the level of stability in the market, however the models give slightly differing results. Throughout the study there is a lack of focus on the factor that risk leads to an increase in the probability of return within the crypto market. There have been many examples of the erratic nature of the price changes and the need of diversification of portfolio and investments. For the purpose of this study, we will be correlating price stability with risk levels. The two models that have consistently been used for determining the volatility in the financial markets are Autoregressive conditional heteroskedasticity (ARCH) and generalized autoregressive conditional heteroskedasticity (GARCH) models. The study will be focusing on the results of the GAARCH model as it provides generally more detailed and comprehensive results.

Conclusion

It is clearly observable that cryptocurrency coinage is a growing medium of exchange with high levels of daily traded volume, which overall has been sharply increasing in the past 4 years as a medium of exchange as well as a medium of investment. People are buying and selling bitcoin all over the world. That is why it has a vast trade of buy bitcoin in Dubai. Many individuals are excited regarding its future as it has very low transaction costs and can at some point become the new incarnation of money and a brand-new cryptocurrency could be developed and be used as the world’s first global currency in the not-too-distant future. This is holding cryptocurrency back from reaching its full potential and unless or until regulation can be placed there will never be enough confidence for this new type of “money” to grow. If governments can somehow implement rules and regulation for cryptocurrencies the security and faith in it will increase and they could become stable in the long run.

Only Official bitcoinshop in Dubai is A to Z globe , there is no other OTC desk apart from A to Z Globe, they are officially Licensed from DUBAI , Government.

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Raghav Sawhney

Raghav is a significant contributer who uses his knowledge, skills and experience towards development & growth of the organisation in an efficient and effective manner.

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