The volatility of Bitcoin is forecasted to reach a similar level as other current fiat currencies by 2019, says a new study by Chappuis Halder & Co. It looked into whether the digital currency’s price can be forecasted like any other asset.
Meant to create a model that is able to predict Bitcoin’s price behavior or be able to identify its future values within a confidence interval - as it exists today for other assets - the paper aimed at understanding the behavior of Bitcoin’s price. It gave an overview of its mechanics and that of the Blockchain technology before explaining internal and external factors that seem to influence the asset’s price.
The future looks bright
The report says:
“Bitcoin and cryptocurrencies are likely to have a bright future in the next few years. The real challenge is, therefore, to succeed in analyzing and modeling them whereas their youth and attractiveness make them very volatile and subject to speculation.”
Bitcoin’s volatility has been a topical issue for quite some time. According to btcvol.info, as a measure of how much the price of a financial asset varies over time, monitoring the volatility level will help one understand when an asset is risky to hold.
The site which tracks the volatility of Bitcoin prices in US dollars puts the latest 30-day estimate of Bitcoin volatility index level at 2.41 percent, as at the time of this writing, while the volatility of gold averages around 1.2 percent and other major currencies average between 0.5 percent and 1.0 percent.
It also notes that if Bitcoin volatility decreases, the cost of converting into and out of the digital currency will decrease as well.
A safe-haven investment
In the paper by Chappuis Halder & Co, Bitcoin’s comparison with other assets for possible similarities or divergences showed that it is a real new asset class that could be used as a currency and as a safe-haven investment.
However, the authors were not able to propose a pricing model for Bitcoin as the Time Series model performed on its price demonstrates its limits with such volatile series.
They believe, though, that a macroeconomic understanding of Bitcoin behavior combined with a stabilization of its price will allow its accurate pricing once the market is more familiar with it as an asset. They also noted that a loss of confidence in the market or a mining shutdown would make cryptocurrencies disappear.
Nonetheless, other factors, like the number of unique addresses, can be predicted more easily and could, therefore, be used to have insights on price conduct. From a macroeconomic point of view, the paper showed how reactive Bitcoin was to monetary policies changes or security glitches.
In the meantime, the safety and transparency of transactions and the evolution of mining profitability are keys to cryptocurrencies survival.