Bitcoin's Unprecedented Liquidity Can Explain Its Price Volatility

[RSRS]

In March 2020, major stock market indexes saw some of the worst price collapses in decades, as markets confronted the realities of the COVID-19 pandemic. Bitcoin was no exception to these economic strains. Having traded as high as $10,000 in mid-February 2020, bitcoin’s price collapsed to below $4,000 by mid-March, including a 30% drop in a day.

Fear caused a flight to cash in across the board, from domestic to international traders, large-cap to small-cap assets, gold to bitcoin. Markets fell, and bitcoin did too.

It was clear that in the face of market shocks, bitcoin’s unique attributes, as listed below, could make it more vulnerable to price collapses as compared to other asset classes:

Trading 24/7/365
Offering final, global settlement within minutes
Accommodating liquidity across all major currency pairs
Lacking a central authority, which can restrict or influence trading behaviors

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[Fighter]

Bitcoin is the best coin. As bitcoin continues to grow, portfolio managers will increasingly view their asset allocations along the axis of those limited by legacy constraints rading hours, holidays, circuit breakers, policy decisions, etc. and those that are unconstrained. In times of crisis, when liquidity is needed immediately, having a portfolio allocation that is unconstrained in its liquidity is valuable.
Bitcoin’s emerging status as the world’s most liquid asset carries implications.