It appears the summer doldrums are weighing on bitcoin. Recent price action in the largest digital currency has been sluggish as bullish and bearish traders are battling it out in the $29,000 to $30,000 price range.
Summer sluggishness has long afflicted stocks, and it appears bitcoin, though young by comparison, is joining that party. However, that’s not necessarily for the cryptocurrency. Nor is it a negative for exchange traded funds such as the Invesco Alerian Galaxy Crypto Economy ETF (SATO).
Bitcoin miners, an asset class highly tethered to the digital currency’s price movements, are the primary holdings in SATO. Those stocks have their reputations for volatility. Said another way, summer doldrums could actually work in favor of SATO members.
On that note, it’s worth acknowledging that volatility metrics for bitcoin and ethereum, the two largest cryptocurrencies, currently reside at multi-year lows and have been in that state for several months.
Why Low Volatility Is Positive for Bitcoin
As noted above, bitcoin isn’t old relative to other asset classes. In its roughly 15 years of existence, the digital asset has developed a reputation for volatility, often well deserved. According to some experts, Bitcoin’s recent respite from volatility can cut both ways.
“Until recently, crypto was typically characterized by its wild price swings. But it’s been trading pretty flat in recent months. That is both a blessing and a curse for investors,” notes deVere Group CEO Nigel Green. “This newfound stability attracts institutional investors, who have been historically wary of entering the market due to its extreme price swings.”
In an observation that could be pertinent or relief to SATO investors, Green points out that the less volatile bitcoin is, the more its credibility as a store of value and medium of exchange is enhanced. Additionally, reduced turbulence can pave the way for broader adoption and an expanded investor base among professional and retail investors.
“As Bitcoin’s price becomes more predictable, it becomes a more viable option for everyday transactions. Businesses can confidently accept Bitcoin as a payment method without the fear of losing significant value between the time of purchase and conversion to fiat currency,” adds Green.
On the other hand, it’s not hard to figure out who’s being frustrated by bitcoin’s recent bout of lethargy. It’s the Short-term traders who thrive off volatility. It’s unlikely they’re abandoning bitcoin wholesale simply because things have been slow for a few months, but some of those “cowboys” leaving the market could benefit bitcoin and SATO.
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