What Skeptics Get Wrong About Crypto’s Volatility - Deepstash
What Skeptics Get Wrong About Crypto’s Volatility

What Skeptics Get Wrong About Crypto’s Volatility

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What Skeptics Get Wrong About Crypto’s Volatility

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The Main Argument Against Crypto

One of the leading arguments against crypto is its extreme volatility.

Between April and June 2022, Bitcoin's value more than halved. Established companies like Coinbase, a popular crypto exchange, have announced layoffs. Crypto sceptics argue that the crash has revealed crypto as a Ponzi scheme.

While some of the criticism is well deserved, the focus on price volatility isn't as strong an argument. Instead, it reveals a misunderstanding of what different crypto assets represent.

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Most projects are barely five years old. Eventually, different coins are meant to serve different functions.

Today, they all more or less act as startup equity with the distinctive properties of having liquidity and price discovery from the start

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Equity, Liquidity, and Volatility

  • Startup equity is a core concept in business. Every type of startup falls into this category. However, traditional startup equity has no liquidity - you don't invest and expect to flip your shares a month later.
  • Crypto is different because a token can start trading right away. But early liquidity has benefits and drawbacks.
  • Everyone from central banks to Wall Street is exploring blockchain technology because the features of cryptocurrency enable cheaper to operate and more dynamic markets. Yet, the downside to enhanced efficiency is extreme volatility.

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Everything Is Bigger on Blockchain

With Cryptocurrency, everything is borderless and the total addressable market is huge. Success could mean significant value accrual to its token, but the project could also fail.

The dilemma is increased because most digital assets can’t be pigeonholed into traditional categories, making valuation much harder. Crypto investors can't rely on established metrics such as a stock's price-to-earnings (PE) ratio. Most digital assets are a hybrid and change from one category to another throughout their lifecycle.

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Price swings give important information to founders and investors, especially during the crucial adolescent stage of any startup.

Universal access, immediate price discovery, and greater transparency contribute to scams and shady behaviour in crypto. But with crypto, even the scams are transparent.

The crypto industry has a lot of growing to do and the current downturn clearly offers some hard lessons. Investors and entrepreneurs are learning not only what is possible in this new ecosystem, but also what isn’t.

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