Research: Why Are Cryptocurrency Prices So Volatile?

Kevin O'Brien

New research carried out by Daniele Bianchi and Alexander Dickerson at the University of Warwick suggest well-informed traders with information asymmetries are driving big price swings by timing markets in a manner where others follow in their footsteps.

The information was revealed in the latest draft of a research paper entitled Trading Volume In Cryptocurrency Markets", compiled by Assistant Professor of Finance Daniele Bianchi and Alexander Dickerson, a Ph.D. student, both of the Warwick Business School.

The duo looked at intraday price and volume data from CryptoCompare to assert “that the interaction between past volume and returns positively and significantly predicts future returns," according to a release by the Warwick Business School.

Traders Drive Price Swings

The release noted how the findings remain consistent with exisiting models:

“consistent with existing theoretical models which postulate that informed traders who speculate on their private information are key drivers of the observed price changes.”

Bianchi wrote how “the cryptocurrency market is the perfect environment to exploit asymmetric information,” since its opaque nature gives those with information the ability to “time the market, make money, and drive the prices.”

The authors of the research tracked 26 cryptocurrencies across 150 exchanges to gather information about markets. The cryptoassets were tracked between January 1st, 2017 to May 10th, 2018, covering the boom and bust of the 2017 bull market.

Patterns With Other Asset Classes?

In the conclusion of the report, Bianchi and Dickerson wrote how their empirical evidence helps give more insights into the crypto market by offering comparisons with traditional ones like FX.

They explained how the evolving cryptoasset class “may not necessarily be different from long-established and more mature markets.”

However, previous research by Bianchi found no crypto trading correlations ‘with any economic indicators that investors would base decisions on or with commodities.’

In a working paper called Cryptocurrencies as an Asset Class: An Empirical Assessment, the professor explained how crypto pricing was influenced by previous returns and the emotions and moods of investors.

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Bitcoin (BTC) Price Drops Over 8% to Below $7,800 in Just 75 Minutes

Siamak Masnavi

According to CryptoCompare, on June 3, at around 23:50 UTC, the price of Bitcoin (BTC) started plunging against the U.S. dollar. Just 75 minutes later, the Bitcoin price broke through the $7,800 support level to reach an intraday low of $7,783. 

Here is the 24-hour BTC-USD price chart:

BTC-USD 24 Hour CC Chart on 4 June 2019.png

Why the Sudden 8% Price Drop?

On social media platforms, among crypto traders, the most popular explanation (not based on technical analysis) for this sudden 8% drop in the price of Bitcoin seems to be the one offered by Reddit user "makoveli", who believes that this BTC dump was the result of price manipulation by a Bitcoin whale.

Here is his explanation for what happened:

  • "About 20-30 mins before the dump, a whale moved 25k BTC (worth $215M) to Coinbase"
  • "About an hour after the dump, a whale moved 14k BTC (worth $112M) from Coinbase to another wallet"
  • "40 mins after that, a whale moved 11k BTC (worth $88M) from Coinbase to another wallet"
  • "15 mins after that, a whale moved 10M USDT from one wallet to another"

To him, it is clear that this Bitcoin whale "dumped 25k BTC for $215M" and "bought it back shortly after for $200M", which means that this person "pocketed $15M and walked away with the same amount of BTC as they started with."

Effect on the Price of the Altcoins

As usual, Bitcoin's price crash managed to drag down the prices of most major altcoins, with the prices of most top 20 (by market cap) cryptoassets down against USD by at least 5% in the past 24-hour period.

Here is how some of the most popular cryptocurrencies have been affected:

  • Ether (ETH): $246.88 (-6.22%)
  • XRP: $0.412 (-7.05%)
  • Bitcoin Cash (BCH): $396.38 (-7.61%)
  • Litecoin (LTC): $103.44 (-7.76%)
  • EOS: $6.67 (-9.14%)
  • Binance Coin (BNB): $29.67 (-6.43%)

Reactions From the Crypto Traders on Twitter



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