Volatility is a problem that is quite common within the crypto market. We’ve seen Bitcoin go from $1,000 to near $20,000 in 2017. However, it isn’t always bullish. In 2018, we’ve seen upward fluctuations, but generally, the market is bearish. But what makes the crypto market different from the previous year today is the regulatory clarity that we now have.
Slowly, regulators from all over the world are working towards making sense of the entire crypto market. Though a unified regulatory approach is still far from happening, most countries are working towards regulating the crypto market rather than banning it completely.
Months ago, US Securities and Exchange Commission declared Bitcoin and Ethereum as commodities. This move ultimately means that financial regulations applied to stocks and other financial instruments are not applied to both cryptocurrencies.
In addition to this, there’s the possible approval of Bitcoin ETF that could potentially invite institutional investors to enter the picture. What could be the effect of regulations in the crypto space?
If you are going to ask head of growth at SFOX, Danny Kim, he believes that 2018 allowed the crypto industry to progress. According to him, the price of cryptocurrencies is more stable across trading platforms with differences of 0.1% or less. And one of the reasons for this is the entry of banking institutions as well as asset management funds entering the market.
He said that: “Before institutional firms were actively trading crypto or heavily involved (before 2018) bitcoin price differences between exchanges varied as high as 4.5%. [Now, variations in price are only one-tenth of one percent.]”.
Kim added that “Some HFT firms have been trading since crypto 2014, but have limited themselves because the infrastructure wasn’t there”. But today, there are new strategies being used by crypto exchanges in order to control price inconsistencies. And also, you have the likes of Goldman Sachs and ICE that has entered the crypto market. C
It is evident today that there is more and more institutional money entering the crypto system as we go forward. Coinbase even created a set of tools specially made for the institutional investors. And also, you have the likes of Greyscale Investments that have steadily infused capital into its crypto funds, most of it came from institutional investors. But unlike what was initially predicted that could make the price of top cryptocurrencies to skyrocket, it has provided a more stable cryptocurrency for its investors.
Stability is a good thing in the long run especially when it comes to increasing mass adoption of cryptocurrencies. This ultimately means that businesses will not worry that the crypto payment that they received will all of a sudden lose value in the next hour or so. In addition to this, regulatory changes can help provide legitimization towards the niche.
Danny Kim sees the future to be more stable. He said that “As this trend continues, the stabilizing effects of institutional investment will extend beyond price spreads, and on to price fluctuations”. Kim also concluded that there is a chance that Bitcoin is going to be more stable, something that was initially planned by Satoshi Nakamoto.
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