One of the most popular arguments against Bitcoin and other cryptocurrencies is excessive volatility. Thus, the extreme price fluctuations from the crypto market are significant obstacles for their mass adaptation as a means of payment. But are cryptocurrencies really much more volatile than some fiat currencies which are at the moment taken for granted as a means of payment?
The volatility of cryptocurrencies is their curse and blessing. On the upside, it enables high-profit margins, especially for short-term day traders. A liability, however, when it comes to reliable and expected payments, such as salaries or non-speculative purchases. In order to enable the efficient economic management, a currency needs to have a stable external value.
Volatility in fiat currencies too not only in crypto
Volatility is always measured in the relation between currencies. In other words, if one currency – be it crypto or fiat – behaves volatile to another. This is the only way to calculate the foreign trade value of a currency. Not only cryptocurrencies but also fiat currencies are traded against each other with a much larger volume. The foreign exchange market is the largest market in the world with around $ 5 trillion in daily turnover, while the crypto market is just $ 15 billion at the same time.
Of course, the higher liquidity of the foreign exchange market makes it much less volatile than the crypto market. However, the stability of the foreign exchange market as a whole does not mean that there are not local currencies with extremely high volatility.
The same applies in reverse for the somewhat more volatile crypto market. There can be cryptocurrencies, which are relatively stable over a longer period. The most critical and wrong factor in this industry is that an individual cryptocurrency like BTC drives the whole market. While BTC has an impact over the market its price can be used as an indicator of trust, but it does not dictate the volatility of the market, merely the sentiment.