The market fundamentals of Bitcoin and cryptocurrencies

Bitcoin as an asset class introduced an alternative to mainstream finance, often referred as the "crypto-economy". It runs on decentralised systems that hold a different set of fundamentals from a trading perspective.

The market that never sleeps holds multiple units of account

Fiat stock exchanges are opened five days per week but close on weekends and evenings. It is possible to trade throughout the day, but investors and speculators have to switch markets.

Bankers typically alternate between America, Europe and Asia to operate continuously on regulated markets.

Cryptocurrency markets on the other hand, are open 24/7 non-stop on online exchanges: you can trade whenever you feel like it. There are two different types of cryptocurrency exchanges:

  • fiat to crypto, with extensive KYC compliance and where you can deposit and withdraw in fiat and cryptocurrency
  • crypto to crypto, with low or no KYC compliance and where you can only deposit and withdraw in cryptocurrency

Market price and capitalisation instability

As bitcoin pioneered digital money and virtual currencies, crypto-market have witnessed tremendous growth since its inception.

Thanks to its privacy conscious features, peer-to-peer transactions, supply scarcity and hedging opportunity against the fiat economy, Bitcoin offers an attractive investment opportunity and fulfils the functions of money.

However, Bitcoin and primarily the cryptocurrency market as a whole, is subject to severe price volatility and liquidity.

  • Volatility: periodic and sudden changes in market price of a given asset
  • Liquidity: ability to quickly buy or sell an asset without impacting its market price

The Bitcoin to dollar pair witnesses substantial volatility compared to fiat currency exchange pairs: it is not uncommon to witness a 50% price variation on Bitcoin and crypto-assets in a couple of weeks.

A similar pattern in fiat currencies would shake up the global economy.

Regarding liquidity, the daily volume of exchange trades from fiat to cryptocurrency was ridiculous at first. But Bitcoin has established itself as the leading cryptocurrency: it is now extremely liquid, however, the same cannot be said for other cryptocurrencies.

Overall the cryptocurrency market dynamics should not be compared with the forex market, but with penny stocks and low capitalisation regulated financial instruments instead.