Banxico believes that yes, in its words, crypto presents high volatility as a consequence of its highly speculative nature and the high sensitivity of its price to changes in user confidence and therefore concludes that we must have a healthy distance between the system financial and crypto.
In that sense, you might ask yourself, what generates volatility? For centuries that has been the question that economists have faced who have indicated that, although it is true that it is extremely difficult to explain in depth the changes generated in the price of an asset in a given market, they can be caused by the asymmetry of information produced by a combination of news and movements of large investors. That is, when a good is exchanged in a particular market, and subject to the subjective and free valuation of its buyers and sellers, they take as a basis the information they have at hand to determine a specific purchase or sale value of said good. and with it fluctuations in its value.
We see volatility reflected in things as basic as omelets or eggs for breakfast or even in the Mexican peso where we see that, in the last decade, the peso has gone from 12 to 25 pesos per dollar, with their respective increases and downs.
Follow us on Google News to keep you always informed
The above, of course, does not generate the categorical statement that these are highly speculative assets and precisely for this reason we must generate a healthy distance from them (although if we are talking about eggs and we are concerned about cholesterol, it may be convenient to have them).
What’s more, I am going to go further than Banxico and I am going to sign emphatically that crypto has VUCA everywhere. And no, VUCA is not a new pandemic. VUCA is an acronym originated in the nineties to refer to volatility, uncertainty, complexity and ambiguity, perfect to describe the times we live in, as well as crypto.
You already know that crypto is volatile, Bitcoin for example has an average daily volatility of 3%. Regarding complexity, it is important to say that significant efforts have been made throughout the world to explain what crypto, blockchain is and how it works. It is so complex that there is even a book entitled “Blockchain for dummies”. If we talk about ambiguity, the crypto world is unprecedented and its causal relationship is not clear. Moving on to uncertainty, there are other things in which we have an abysmal lack of information, what’s more, we don’t even know who or who created Bitcoin.
Follow the information about the businesses and the news in Forbes Mexico
If you consider that crypto is packed with VUCA then how could you contain or mitigate the risks?
When talking about volatility, it is advisable to create a margin of maneuver and have available resources that allow you to be prepared for it, say for example derivatives such as forwards or futures that could allow you an adequate risk management. In that sense, it is necessary to remember that crypto derivatives are already contemplated in the so-called “FinTech Law”. When dealing with the issue of complexity, the way to deal with it is to develop the infrastructure and training for the generation of new specialists. In this sense, we had the opportunity to train some officials of our Central Bank on issues blockchain in 2019.
In relation to ambiguity, the way to deal with it is to experiment to understand the cause and effect, which requires the generation of hypotheses and their validation, to date I only see hypotheses, the validation is offered by the FinTech Law itself in the so-called novel models or sandbox regulatory.
Follow the business information in our specialized section
In relation to uncertainty, you have to invest in information, collect it, interpret it and share it, in addition to that there is the code that in most blockchains is public and you can consult freely.
In conclusion, although crypto can be volatile and full of VUCA, this is not an intrinsic characteristic in these assets, on the contrary, it is something that it shares with any other asset that is traded in a market. What is certain is that there are multiple mechanisms to reduce or mitigate the risk that is created before it.
See you in the next installment and remember that this column can be your gateway to the impossible.
Subscribe to Forbes Mexico
Carlos Valderrama, Founding Partner of Legal Paradox, President of the blockchain legal group for Lacchain (an initiative of BidLAB) and representative of Mexico before the Blockchain Association Forum (World Association of Blockchain Associations, in Spanish). *
The opinions expressed are solely the responsibility of their authors and are completely independent of the position and editorial line of Forbes Mexico.