Experts explained why the trading of digital assets does not stop for a minute, how their value is formed and what is the reason for the high volatility
Trading cryptocurrency and trading in stocks as well as financial markets may seem identical at first glance. But there are differences in these industries that cannot be ignored, as they make their own adjustments and can affect the success of the trades.
For example, American stock exchanges are open from 16:30 to 01:45 Moscow time, while Asian markets are open from 03:00 to 12:00. This does not apply to crypto exchanges, said Michael Ross-Johnson, CEO of the Chatex p2p cryptocurrency platform.
The work of cryptocurrency exchanges without interruptions and weekends gives wide freedom to the trader, says Grigory Klumov, founder of the Stasis stable cryptocurrency platform. If a trader is engaged in making profit from short-term speculation, he can plan his time regardless of location, time zone, chart, and at any time connect to the market to find interesting transactions.
At the same time, it is important to understand what time the bulk of crypto traders of a particular region wake up, advises Michael Ross-Johnson, and take into account that with the arrival of a large number of new players from a certain region, the price can sharply move in one direction or another. At the same time, the availability of the market 24 hours a day does not mean that it is necessary to monitor cryptocurrency quotes around the clock, added Denis Voskvitsov, head of the fintech company Exantech.
“If you follow the crypto market around the clock, burnout will happen in a matter of weeks. It is necessary to develop a strategy and adhere to it, avoiding any impulsive decisions, ”the expert advises.
For the first time in the history of mankind, private investors have the opportunity to gain access to a new promising class of assets, such as cryptocurrencies, earlier than institutional investors, Grigory Klumov emphasizes. According to him, cryptocurrencies are the first market where there is practically no institutional capital, and this, in turn, generates volatility.
“Volatility is created by several factors: private investors have a higher rate of return on capital, terms of capital allocation are shorter, and the competence of participants is lower,” Klumov explained.
Michael Ross-Johnson believes that the volatility is caused by the youth of the crypto market. In his opinion, the field of cryptocurrencies is not yet fully regulated, as there are many fresh mechanics and an audience from different parts of the planet. The asset price is highly susceptible to investor sentiment, since a clear set of rules for the market has not been established, the expert added.
In digital assets, the price is formed according to the classical model of supply and demand balance, since the amount of the same bitcoins is limited and by adjusting the amount of bitcoins in circulation, the price can be formed, says Michael Ross-Johnson. He reminds that the price in traditional markets is made up of many factors: forecasts of analytical agencies, financial performance of companies, ratings, government regulation, news background and other dependencies.
Crypto exchanges are often accused of inflating volumes in order to get a higher rating and attract more traders, Denis Voskvitsov noted. According to him, while there are parallel ratings of exchanges and trading volumes showing very different results, but soon the indices will begin to form the current leaders of the traditional market, and they can be more trusted.
Protection and insurance
Due to low volatility in traditional markets, insurance of investment portfolios is practiced, said Michael Ross-Johnson. He claims that this financial instrument is beneficial for both insurers and investors, as it helps to protect investments in case of force majeure. According to Ross-Johnson, this is not the case in cryptocurrency markets, as movements can be so strong that insurers simply will not have enough funds to cover losses if the market becomes chaotic.
The insurance market in the field of digital currencies is just beginning to form, added Grigory Klumov. He explained that derivatives such as options on Bitcoin and Ethereum are already emerging.
“If we talk about DeFi strategies, then insurance projects appear that take on the function of an insurance agent, that is, they will reimburse funds in case of unplanned losses, such as hacks, protocol hacks and loss of assets by a smart contract that invests them in the interests of user ", – says the founder of the stable cryptocurrency platform Stasis.
There is no definite set value of an asset on the crypto market at a given time, since different quotes are presented on the sites, explained the CEO of the cryptocurrency p2p site Chatex. He explains this by the fact that the traditional stock or currency market is controlled by states and central banks, but crypto exchanges are not, since they are private companies and set the rules for trading on their sites themselves.
"The price does not differ much, however, on the domestic regional exchanges it can significantly exceed the world average due to a sharp deterioration in the economic situation in the region and the desire of people to protect their assets with bitcoin," added Michael Ross-Johnson.
For example, two days ago, the cost of bitcoin on Turkish cryptocurrency exchanges approached $ 100,000 due to the fall in the Turkish lira exchange rate.