A major problem for bitcoin is its extreme volatility, which is a cause of concern for many investors. A lack of liquidity may be to blame for the cryptocurrency’s volatile nature, an expert tells CNBC.
“The high volatility I think is due to the low liquidity we have on exchanges today,” Cedric Jeanson, CEO of BitSpread, told CNBC’s Street Signs on Thursday.
Bitcoin has attracted a lot of criticism in recent weeks from big names including JPMorgan’s Jamie Dimon and Bridgewater Associates founder Ray Dalio. A common criticism is that bitcoin is too volatile to be an effective store of wealth, unlike gold.
The digital currency is currently trading at $3,883.76 per bitcoin. Year to date its value has risen by 289 percent, according to data on CoinDesk, but bitcoin also fell from a record high of around $4,991 at the start of September to as low as $2,989 by the middle of the month. That’s a loss of 40 percent over less than two weeks.
Jeanson suggests that having more market makers, such as his company, can help to improve this liquidity problem.
“The important thing is to add market makers on these exchanges and have the appropriate rules, (such as) anti-money laundering and Know Your Customer, around those exchanges,” he said.