Cryptocurrency has been a highly unpredictable investment due to its inherent market fluctuation. Despite this, many investors are drawn to the potential of high returns in such an ever-evolving space.
Aside from stablecoins, which are purpose-built cryptocurrencies aimed to be pegged to a specific FIAT currency, such as USD, most cryptocurrencies are volatile. Even stablecoins experience some level of volatility, and as such, many investors are looking for safer, alternative options for investments.
Thus, today we will go over what cryptocurrency volatility is and how it affects the crypto space as a whole, as well as how investors can possibly protect themselves from the volatility. Let us begin.
What is Volatility?
Volatility is a measure of how much a cryptocurrency’s value fluctuates over time. It provides insight into the market’s perceptions and expectations for any given coin, demonstrating its potential versatility in trading strategies.
Volatility within a financial market directly references the changes in the price of a given asset. It can be a growing asset that has a steady increase in value within a general range. However, it can be extreme, with sudden price swings in either direction as well.
Extreme volatility will typically have a negative connotation, mainly due to the fact that it is associated with a chaotic market, uncertainty, and a high level of loss.
When markets, typically the cryptocurrency market, swing between extreme highs and even more extreme lows, investors and traders might take bets on predicting which direction the market will swing next, which can cause even more price volatility.
The Volatility of Cryptocurrency Explained
Price volatility in the cryptocurrency market is significantly heightened by news and advancements within blockchain technology. Crypto markets lack liquidity when compared to more established traditional financial instruments, leaving them vulnerable to rapid shifts due to even minor changes within the space. This perilous combination of high-risk trades in a low liquidity environment can make for an exciting – yet risky – investment opportunity!
Besides the Bitcoin (BTC) cryptocurrency, many altcoins typically lack a well-established and widely-adopted market for derivatives.
How Does Volatility Impact the Value of Cryptocurrencies?
Cryptocurrencies are an emergent asset class, and as such, have limited use cases compared to well-established commodities like gold and real estate. This new industry presents unique opportunities and risks that investors should be aware of before jumping in head first.
Blockchain technology is currently in an exploratory period, with governments developing regulation plans and developers creating new opportunities to apply the tech. From finance to other industries, its potential for revolutionizing everyday processes has yet to be fully unlocked.
The Recent Crypto Market Performance
Throughout 2022, the cryptocurrency industry saw two major events which ultimately contributed to the crypto winter.
First, we saw the collapse of the Terra (LUNA) ecosystem, which featured the TerraUSD (UST) stablecoin. The effects were felt market wide as fear in the market tested all-time lows.
Ultimately, the subsequent volatility began exerting pressure on other areas in the space. Fast-forward five months, and the collapse and downfall of the FTX cryptocurrency brokerage followed – one of the largest in the crypto space.
With the news of FTX’s insolvency, we saw its native cryptocurrency, the FTX Token (FTT), begin decreasing in value, where it experienced a high level of volatility and collapsed by 80%. At this point in time, platforms such as BlockFi halted withdrawals, and Tether (USDT) lost its peg for a short period of time before recovering.
For reference Tether is one of the largest stablecoins within the blockchain space.
On November 6, Changpeng ‘CZ’ Zhao, the Chief Executive Officer of Binance, announced the company would sell off its substantial holdings of FTT.
This was essentially, “the straw that broke the camel’s back,” in a seemingly abusive use of decentralized environment, that brought down the MOST trusted exchange in the crypto space.
The collapse of Terra (LUNA) followed by FTX was a blow to an already volatile and weak market. All of this would ultimately result in a bear market, where investors would lose trust in blockchain technology and some exchanges.
As a result, the blockchain industry continues to face the challenge of navigating extreme market volatility. On November 5, 2022, Bitcoin (BTC) had a value of around $21,400. As of December 29, 2022, its value is at around $16,600.
Cryptocurrencies entered a period of dramatic decline, signaling the onset of an extended crypto winter. A vast number of digital assets plummeted in value over several months, leading to widespread financial losses within the industry.
However, the blockchain space, through tokenization, asset fractionalization, smart contracts, decentralized applications (dApps), and the Decentralized Finance (DeFi) aspect of it as a whole, has enabled investors and traders with alternative ways through which they can get into cryptocurrency investments that depend less on discovery than most blockchain projects.
What is USPC?
The United States Property Coin (USPC) project aims to provide investors with an alternative option for investment in the blockchain space. Through ownership of USPC, each investor has fractional ownership of a real-world asset which has the potential to generate passive income in the form of asset appreciation and rental income.
The project is built on the Ethereum (ETH) blockchain, and is designed to automate, validate, and record transactions on a secure digital network.
This specific smart contract on the Ethereum network is called the, ERC-1400 security token. This standard features an institutional-grade blockchain solution that is intended to enable the highest level of compliance with the current regulations surrounding digital securities issuance.
Combining Real Estate With Crypto
Real estate, as an asset class, has been an appealing option to a lot of investors, even those outside of the blockchain space. With the right implementation, blockchain technology has the potential to bring increased access to the real estate market without compromising its fundamental value.
By following a strict acquisition strategy that aims to prioritize stability over speculative short-term growth, USPC aims to give token holders more predictable and consistent returns. The focus on core and core-plus multifamily properties plays a key role in the growth of markets and locations, which aim to aid in minimizing the risks and maximizing the value for investors.
As a security token backed by a tangible real estate portfolio, USPC is essentially pooling together core real estate assets located throughout urban markets within the U.S., then fractionalizing ownership of that portfolio on a rapid and secure blockchain network.
This means that USPC essentially streamlines and automates the real estate transaction process, which is recorded on top of the Ethereum blockchain and creates an immutable representation of ownership stored on a public database. Tokens are then transferred through a peer-to-peer (P2P) network combining the most modern technologies to create a liquid real estate-backed digital currency.
What this results in is the fact that the real estate market, which was otherwise an illiquid market and asset class, has now become democratized and highly liquid, as more people than ever before can enter it without needing to put hundreds of thousands of dollars in capital upfront, whilst also leveraging most of the benefits associated with real estate investing.
USPC is an asset-backed cryptocurrency that is subject to federal and state regulation; additionally, as USPC holds and gains new real estate assets, the project would be subject to the market fluctuation of said assets. Thus, the volatility of a real estate backed token such as USPC, is a least in part corelated to the gains, losses, and stability of the underlying property.
USPC intends to comply with all applicable securities, laws, and regulations as a result of this. However, the Securities and Exchange Commission, or any other state securities commission, has not yet approved nor disapproved USPC at this time.
Additionally, even though USPC is intended to create value for many investors, it is important to remember that there are risks when investing in USPC. Any investor should read the private placement memorandum to get all of the necessary data and information about the project first.
United States Property Coin is one of the latest projects within the blockchain space that aims to revolutionize the real estate industry and aims to make it possible for just about anyone to make investments within income-producing properties on top of the blockchain.