The favorite cryptocurrency’s $1 trillion market cap is currently too large to ignore, but bitcoin will stay’ultra-volatile’ due to its’limited tradability,’ Deutsche Bank said in a report.
‘Bitcoin’s overall worth is $1,075 billion (as of 03/15/2021), that is approximately 102% of the yen in circulation, 65 percent of the euros, 53% of the USD, and also 904 percent more compared to GBP. However, the average number of bitcoins traded daily in USD is equal to just 0.05% of their yen and 0.06% of those GBP,’ the report said.
The cryptocurrency’s massive rally has largely been driven by the’Tinkerbell effect,’ meaning the more people think the price of bitcoin will appear, the more likely it will occur, the bank said.
‘Big players who buy and sell bitcoins have considerable market-moving power. As long as asset managers and firms continue to enter the market, bitcoin prices could continue to grow,’ the report said. ‘However, bitcoin trades and tradability are still restricted. And the true argument is whether climbing valuations alone can be reason enough for bitcoin to evolve to an asset class, or if its illiquidity is still an obstruction.’
The illiquidity debate makes bitcoin quite volatile for weeks to come, according to Deutsche Bank.
‘Due to its still limited tradability, Bitcoin is expected to stay ultravolatile. Bitcoin liquidity stays low. In 2020, 28mn bitcoins changed hands (150% of total bitcoins in circulation), when compared with 40bn stocks of Apple (270 percent of its entire shares in flow ), the report mentioned. ‘We estimate that less than 30 percent of transactional action in bitcoins is related to payment for services and goods, with the remainder largely employed as a financial investment.’
This means that only a few new sellers or buyers could leave a large imprint on the purchase price. ‘The root causes of Bitcoin’s volatility contain: small strategic asset allocations and the entrances and exits of big asset managers,’ Deutsche Bank specified.
Another possible volatility-trigger will be government regulations, that are arriving shortly, the report included.
‘Central banks and governments know that cryptocurrencies are here to stay, so they’re expected to begin regulating crypto-assets late this year or early next year,’ the bank said. ‘They can also speeding up study on their particular Central Bank Digital Currencies (CBDCs) and launching pilots.’