Unmasking the Boogeyman: Why Crypto’s Volatility Doesn’t Mean What You Think

Volatility is often seen as the Boogeyman of the crypto market due to its role in scaring away potential investors. While this perception has been used by skeptics to sow doubt and slow the adoption of the technology, crypto’s high volatility is not the result of any inherent flaws. Not only is it well known by experts that volatility is essential to every market but crypto’s volatility can, in fact, be considered a feature.

Every market is based on elements like the relationship between supply and demand, auction processes, and the search for personal benefit, which can only occur if volatility exists at some level. Economic growth, financial opportunities, and innovation would not be possible without volatility, making it neither “good” nor “bad” by itself, only necessary. As such, any given level of volatility should be considered in specific contexts to correctly assess its meaning.

“How could crypto live up to the hype if participation feels like a rollercoaster — one whose operator is opposed to safety inspections?” Wrote Columbia Business School adjunct professor Omid Malekan about crypto’s volatility. “While some of the criticism is well deserved, the focus on price volatility isn’t as strong an argument as critics might think. Rather, it reveals a misunderstanding of what different crypto assets represent.”

According to Malekan, crypto’s volatility is often influenced by factors specific to both the industry and the technology behind it. These factors include the early liquidity, efficiency, transparency, lack of gatekeeping, size of the addressable market, and opportunities that crypto was designed to offer. Crypto’s volatility is not the result of flaws in its economic or technological approach but its success in fulfilling its mission.

Interestingly enough, traditional markets are often spared the same level of scrutiny as crypto markets when it comes to volatility, security, and transparency. This is despite the fact that the centralization and legacy systems they use are known to be the perfect cover for shady practices like “flash orders”. Such practices can result in catastrophic events like “Volmaggedon”, currently at risk of repeating, which are often ignored when comparing the traditional and crypto markets.

This lack of coherence is also reflected by how some of the same financial institutions and executives that have used the “volatility argument” to undermine crypto in the past, now have a financial interest in the technology. These include investment in crypto-related companies, offering crypto-related services, and accepting money from crypto-related companies but go even further. Back in 2019, JPMorgan Chase could resist developing its own blockchain network and digital currency despite its CEO’s clear disdain for crypto.

This didn’t stop the bank’s “JPM Coin” from getting dangerously close to being mistaken for a stablecoin in more ways than just name. The so-called “bank deposit token” would also be announced to be programmable in the future, with the bank finding inspiration from Ethereum’s “smart contract ability”. Despite having tried to distance itself from crypto, the bank further muddled the line by executing live trades on the Polygon mainnet.

Crypto was at the center of this year’s edition of Grit Daily House, which took place as part of Consensus and hosted the “Volatility As a Feature of Programmable Money” panel. As the title suggests, the topic of how volatility is inherent to crypto due to its programmable nature was at the center of the panel moderated by CoinTelegraph MENA CEO Nikita Sachdev.

Souq Co-Founder & CEO JonPaul Vega and Crypto 101 Co-Host Aaron Malone joined the panel to share their insights and predictions on topics like the role of volatility, web3, bear markets, and regulation in the crypto industry. To learn more about what they had to say, make sure to watch the video below or on Grit Daily’s official YouTube channel!