Meta (former Facebook) CEO Mark Zuckerberg: shares plunged 26% this Thursday (Drew Angerer/Getty Images)
One of the most common criticisms of the cryptocurrency market is its volatility. Indeed, the industry still suffers from very high price volatility in short periods of time. But the recent performance of the U.S. stock market suggests that this is not unique to digital assets, and experts point to technical factors that reduce risk in the cryptocurrency market – at least in terms of volatility.
Discussions have reached a climax with the recent trading of shares of companies like PayPal and Meta (formerly Facebook) on the Nasdaq. On Wednesday, the payments company's shares plunged more than 25 percent, while the social media giant fell nearly 27 percent on Thursday. In both cases, shares opened lower due to market pessimism about the company's balance sheet, which was announced the night before.
As a result, investors who held PayPal shares on Tuesday woke up on Wednesday with a 25% reduction in the value of their assets and no possibility of defending or selling at the beginning of a bearish trend. The same situation occurred this Thursday with Facebook's newspapers.
"The cryptocurrency market operates 24 hours a day, 7 days a week. It's not this discontinuity of the stock market. People who had FB yesterday wake up today and can't do anything about it, while the assets melt down. In the stock market, risk management is day by day if something breaks in the middle [entre um pregão e outro], only tomorrow you will know. Cryptocurrency is punctual. If it starts to fall, you can sell before it falls further, if that's the case. It's a more efficient system," commented André Portilho, head of digital assets at BTG Pactual.
Sam Bankman-Fried (SBF), founder and CEO of cryptocurrency exchange FTX, has been hailed as one of the most influential people in the global blockchain industry in 2021, and he talks about it in the latest issue of Cryptocurrency Futures at the end of January (watch in the player below): "It's important to understand the power of cryptocurrency risk management It's important to understand the power of cryptocurrency risk management. Imagine putting five times the leverage on a CME contract [Bolsa de Chicago especializada em contratos futuros] on Friday at 3 p.m., and on Saturday war breaks out between two countries. You will have to wait a few days to do something In contrast, in cryptocurrencies, you need to think about the risk for the next two or three minutes, not two or three days. In extreme cases, you start to see a 5% to 10% move instead of, I don't know, 50%."
The different dynamics of the cryptocurrency market give investors better control over their investments – not only because of uninterrupted business hours, but also because of greater access to data, as information on the blockchain is publicly available, whereas in the stock market most of the data is held by the banks, brokers and companies themselves, disclosing only what interests them.
But beyond that, there are studies that show that many stocks typically behave worse than bitcoin as far as volatility is concerned. According to a survey by manager VanEck, 112 companies in the S&P 500 stock index (major U.S. companies) were more volatile than bitcoin during a 90-day period in 2020. This number is even higher if it is an annual period, out of 145 companies.
For Sam Bankman-Fried, traditional financial markets still come with an old infrastructure that is outdated and, in his opinion, very confusing. "I don't think it makes sense. It's a historical legacy and I'm happy to see the cryptocurrency market impacting the traditional market because I think it will really help investors get equal and efficient access," he said, adding that over time, the volatility of the cryptocurrency market tends to decrease while the infrastructure continues to evolve to withstand the huge fluctuations.
Until that actually happens, the cryptocurrency market will still experience moments of intense volatility that may last forever. But with modern infrastructure, flexible and efficient processes and platforms, and markets that never close, investors have the tools they need to manage their own risk and avoid losses – or wake up with their portfolios worth a quarter less than they were then. Where he went to sleep.
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