Crypto market is boring now

Cryptocurrencies were notorious of their volatility. However, the traditional market has been more volatile than the crypto market. 

What has happened?

The volatility depends on how certain the future will become. If the future is uncertain, then it is riskier with higher volatility compared with more certainty of lower volatility.

From the asset classes' point of view, the volatility links to the debts ratio since the higher the debts of the asset classes, the market tends to fluctuate more than it used to. 

Also, it depends on the central banks to increase its interest rates, making debts more unprofitable and harder for borrowers to pay off. It makes it harder for whoever borrowed money to make profits than with a lower interest rate environment. 

But if you switch your point of view from the focus on debts to credit, you will have a different perspective on how the economy operates.

Debts are eating up money, and credits are providing money.

When the speed of eating up money is faster than providing money, we are at trouble. This problem is called a liquidity issue.

The economy is about trading and money flowing through each trade. If there is no money, the trade will not be complete. When the trade stops, people will not get paid and afford anything they want to.

The central bank is to prevent liquidity dry up and impact trading. 

Of course, they will not directly impact the trade but indirectly manipulate interest rates, influencing the money flow from debts to credits or vice versa.

Why crypto market is stable?

Crypto market does not depend on debts yet!

Its risk solely depends on crypto exchange. The model is more simple and fragile on the modern view of finance as people can easily panic sell to bring down the market.

The crypto market is stable because more institutional investors are staking more than used to.

So crypto adoption is coming slowly but steady.

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Photo by Filip Mishevski on Unsplash