For several months now, the discussion of bitcoins and digital currencies has been in the headlines in the Persian language media…
Statistics of rapid price growth were published daily in virtual networks and media. But since December, about a month ago, the price of bitcoin has dropped by 50%.
Is this normal?
The answer is yes, it is normal.
In financial markets, the phenomenon of “volatility clustering” was first introduced by Mandelbrot in 1963, stating that after sharp increases in prices, there are sharp reductions, and after small increases, there are small reductions in prices. It happens. In other words, strong fluctuations are placed next to each other and small fluctuations are placed next to each other.
This phenomenon led to the development of GARCH models in time series econometrics.
Along with the issues related to turbulence clustering, the Random Walk Hypothesis hypothesis was put forward, claiming that stock price changes followed a random step process and were therefore unpredictable. Of course, this hypothesis, which is consistent with efficient markets, is highly questionable today. Therefore, according to this theory, we should not be shocked by the 50% reduction in the price of bitcoin!
So it is not unnatural to see a rapid decline in prices following an ever-increasing price increase. Financial markets, as complex systems, can easily shock you. So try to cover your investment risk in some way.
Look at the picture below:
In the image you see, the price drop of Bitcoin has been entered since 2011. As you can see, this price drop in 2018 is not the largest price reduction that has occurred in the Bitcoin portfolio. Therefore, we have faced such a situation before and it can be said that this drop in prices in the digital currency market is not a strange thing.