“Decentralized currency — Centralized risk” A comparison between Cryptocurrencies and the oil futures markets.
Cryptocurrencies claim they aren’t centralized.Whilst this is technically true, I want to argue that, until decentralized exchanges become popular, the practical reality is that price risk for bitcoin is still extremely centralized. Not only this, I will argue that cryptocurrencies are much more susceptible to centralized risk than traditional financial markets.
I’m going to make the theme of this article one of comparison — I will compare cryptocurrencies with the oil futures market through a hypothetical scenario.I will do this to determine which of these two markets (one developing, the other already developed) is more susceptible to centralized price risk. Hopefully in the process we can learn which of these two markets is more exposed to a shock event and what would happen to the price should such a shock event occur.
The scenario — A major exchange suddenly stops trading for 24 hours
Bitcoin: What could happen?
This is an interesting scenario, especially since we’ve seen it happen many a time on the cryptocurrency market. The best example is the price shock that occurred following the Mt Gox momentary closure in…