Volatility and Liquidity: How Bitcoin Compares to its Crypto Competitors

Discussion in 'ESO - English Spoken Only' started by Gilang574, Jan 9, 2017.

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  1. Gilang574

    Gilang574 Rajin Online

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    2016 has been a bull year for privacy-focused cryptocurrencies.

    Just as an example, last year we saw the rapid appreciation of monero, the mega-hyped launch of zcash (which peaked at an astounding $5,300 per coin) and subsequent pumps in other similar offerings including shadowcash and navcoin.

    But, while it may seem like these crypotcurrencies are something new or novel, I would argue that all of these are "payment coins" competing in the battle to win the war to be general money.

    Let me explain.

    While most altcoins tend to be forging into market specific "appcoin" territory, what makes payment coins unique is the sheer size of the potential win. While appcoins can only capture a market segment that effectively puts a cap on their valuation, payment coins being a kind of generalized money can capture "M2 money supply" as a ceiling – ie trillions.

    When I look at payment coins, I see that very strong economic network effects are in play.

    As I covered earlier with my Commerce Index, liquidity and low volatility are very important for a coin to be useful for general trade as both of these qualities are crucial to make it compelling for end consumers to charge their wallet with a payment token for spending. With high volatility, there’s too much risk holding funds, and with insufficient liquidity, wallet recharge and merchant fees will be high.

    When looking at the combined qualities of liquidity and price stability together as a Commerce Index, we could see other coins catching up with Bitcoin. In this study I will be doing a deeper dive into these two qualities individually.

    For the sake of this study, I will be looking at the leading coins by market cap, namely bitcoin, monero, dash, Zcash and ShadowCash. All of these coins are well above $5m market cap, navCoin and others at less than $3m have been excluded.

    Liquidity of payment coins


    The plot above shows the liquidity (weekly traded volume) of each payment coin.

    For the sake of comparing apples with apples, the Chinese zero-fee markets for bitcoin have been ignored as volumes can be faked easily. If we had included them, you can multiply bitcoin's volumes by 10x to 100x.

    The liquidity of alternative payment coins has been on a rapid rise in 2016, particularly in the case of monero (which if this year’s trend continues could match bitcoin in just one year). But, there’s an argument here that liquidity can climb quickly upon the introduction of a new currency as can be seen by the steep liquidity growth of bitcoin in its first two years.

    Of note is Zcash’s introduction which opened with remarkable liquidity, levels similar to what monero and dash enjoy today but which took them two to three years to achieve.

    It's pretty clear that liquidity can be won very quickly.

    Volatility of payment coins
    Arguably achieving low volatility is more important than sheer liquidity as this is key to mass adoption.

    Consumers need to be sure a payment currency is stable before charging their wallets. If the token price swings wildly like we saw in bitcoin's early days, we would see very few people holding it in their wallets, and no chance for user adoption.

    It’s the prerequisite – if nobody is using your coin because of high volatility, then who cares if you have liquidity to assist in lowering merchant fees.

    In this section, I’ll plot each payment coin’s volatility trend.

    Bitcoin Volatility


    In a previous volatility study, I established that bitcoin is well on the path to being the most stable currency in the world, an astounding claim, one that surprised even me.

    Yet, when I break down the mechanism in which price stability is achieved, it makes sense.

    Price stability happens at the exchanges. If you want to buy or sell a currency, and there’s millions of buyers or sellers on the other side of the market wanting to take your order, you will see a very small change in price movement from your trade.

    When we look at fiat forex markets, the orders comprise of speculative trade, international trade and remittances. National trade within a currency never hits the forex exchanges.

    But with bitcoin nearly all merchant and remittance activity worldwide hits the exchanges to convert to fiat, thus the potential for a much deeper order book. Another way to say this that with bitcoin, every cup of coffee you buy, anywhere in the world adds to market stability.

    Its ceiling on stability should be orders of magnitude higher than fiat currencies.

    The study concluded bitcoin would achieve fiat level volatility by mid-2019, which in my opinion is a level that will create a positive feedback loop that leads to more mainstream comfort with the currency.

    This should open the way for bitcoin as a viable mainstream currency for the use of day to day commerce, further increasing its stability. A side conclusion was that payment startups such as BitPay are too early, and that their time will come in 2-3 years.

    sumber media : http://www.coindesk.com/network-effects-volatility-liquidity-bitcoin-versus-payment-coins/

  2. Coalfridge

    Coalfridge Fresh dari Oven

    "The most stable currency in the world" which is being supported by sole technology, it's a controversial claim. Let's hope in the 2019-th it would be matching this forecast. Nice article, thank you for efforts.
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