Low Ether Volatility Will Remain Short-Lived
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Over the past month, the price of ether (ETH) has remained remarkably constant – at least by the standards of a token that ranged in value from $8 to almost $800 in 2017.
Kicking July off at $453, ether is currently trading at $432. It touched above the $500 mark twice but only briefly, falling back in less than a day. Subtracting its lowest valuation, $429, from the highest, $513, ether’s July price range is $87.
Ether’s price data highlights it has become increasingly stable since the start of the year. The ETH price fluctuated by $691 in January; in February and March, it moved by $587 and $507 respectively; April, May, and June had price ranges of $345, $323 and $218.
Ether Volatility Slowing?
Cryptocurrencies are not well-known as a stable store of value. Whereas 20% changes would send stock-brokers into cardiac arrest, it’s water off a duck’s back for crypto investors. At the time of writing, 15 top coins have moved by at least 10% in the last 24 hours
Fiat currencies rely on central banks to guarantee value and maintain some sort of stability; through alterations to supply or the cost of borrowing. Like most other cryptocurrencies, no one is responsible for ether’s monetary policy: price is essentially a compromise reached between the level of demand with that of the level of supply.
In a nutshell, this explains prices shifts. As demand for an asset increases, its price rises and vice versa. In a free market, these levels are never fixed or managed; even assets with stable values, like gold or (relatively speaking) Bitcoin, still experience levels of price fluctuations.
What volatility measures is the extent to which an asset’s price changes. Gold generally has a low level of volatility, its price moves within narrow parameters giving it a stable value. Historically this was not the case for ether, which used to fluctuate widely in price over the course of a month as supply and demand would continually adjust. Declining volatility suggests people are still buying and selling, but supply and demand have remained relatively constant, meaning ether has managed to maintain a stable price.
The influencer’s influencer
The price of bitcoin shot up by $2,000 in July following the news of Bitcoin ETFs (and fell slightly following the rejection of the Winklevoss’ proposal). It doesn’t impact massively on bitcoin’s effectiveness as a currency and won’t change anything for the vast majority of investors who are excluded from using these instruments.
Nonetheless, the price rose because the market interpreted ETFs as a sign that major financial institutions recognized Bitcoin’s long-term viability: positive news led to increased volatility as the level of demand far outreached the previously established level of supply.
Something similar happened to ether earlier this year. In late April, Ethereum’s development team publicised new features like sharding and plasma, which would markedly improve the network’s scalability once implemented. As Crypto Briefing reported at the time, this caused the ETH price to nearly double from $366 to around $700 in a couple of weeks.
But in mid-May, the market responded to rumors that the SEC would classify ether as a security and therefore in breach of American financial regulation. These rumors were false and reports of an imminent crackdown reported in multiple crypto media outlets turned out to be unsubstantiated. Nonetheless, the ETH price fell by $100 over the course of the day.
The more desirable an asset, like ether, gold or petrol becomes, the more it is demanded. Supply and demand are not hermetically sealed entities: they are affected by a cornucopia of factors, some real, some chimerical.
Ether is a very different asset to Bitcoin. While BTC is designed as a peer-to-peer currency, Ether is designed to be used as ‘gas’ to run smart contracts on the Ethereum network’s machine.
The ETH price is not highly stable even today, because it has not yet reached a natural value. It remains an unmanaged asset with a value based on speculation; like other cryptocurrencies.
Yet Ether volatility has declined month-on-month since the start of the year: the more development goes into Ethereum, the more the market will differentiate between ether and the rest of crypto. Just last week, Wanchain announced it had become fully interoperable with Ethereum.
The ETH price still remains at the behest of market fluctuations. When the Ethereum network becomes fully operational, ether will still experience a changing value: but with increased ‘real-world’ use-case, volatility is likely to decrease.
A stable or natural value has yet to be established for ether. Given time and development, this will emerge. Ether volatility will decline and the market will reach an established consensus on the ETH price.
The author holds BTC and ETH, which are mentioned in this article.