What to know about volatility in the cryptocurrency market

If you think that the recent approval of two Bitcoin exchange-traded funds on Wall Street will bring some stability to the cryptocurrency markets, you may be surprised by what Changpeng Zhao, founder of the premier exchange Binance has to say about this matter.

Changpeng Zhao recently went on record to say that volatility in the cryptocurrency markets is about the same as the S&P 500. The difference, he argues, is related to the prevalent style of trading that seasoned Wall Street investors have developed over many decades. The CEO of Binance clarified that this observation needs to exclude Tesla Motors stock, which is tied to heavy speculation often spurred by controversial founder Elon Musk.

What is known about volatility in the financial markets is that it can be quite predictable, at least for most investors and most institutions. Volatility is a predictable factor of the economy and global macro conditions. What this means is that Bitcoin, Bitcoin Cash, Ethereum, Ripple, or whatever it may be can be a predictable factor of market movements because they are driven by the same economic and macro conditions. Thus, if the S&P 500 moves up and down by a few percent in a year, that is the same as what is happening to Bitcoin, but traders tend to react too swiftly in this regard.

The CEO of Binance explained in his latest message how these markets are the same. Volatility in the financial markets often signals that the economy is in crisis and the stock market may be taking a severe hit. So, we can conclude that if the stock market is stable, that is a good indicator that the underlying economy is healthy. This also means that if the stock market drops precipitously, then the economy must be doing poorly and, as a result, the stock market may be going down in a significant way.

If anything, now that Bitcoin is represented on Wall Street by two ETFs, volatility should be higher during the first few months as institutional investors adjust to this new financial security. Fans of technical analysis will see more indicators on their charts, but fundamental analysts will continue to listen to positive news developments.