Hedges and Volatility - Long Term Virtual Currency Trends

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24th Jun 2013

Over time, the VenBitcoin and Ripple are exhibiting very different price history characteristics. Here's why.

As the virtual currency industry matures into a legitimate growth industry, financial markets have become more interested in virtual currencies as a legitimate store of wealth and a path to appreciative value.  Over time, all three of the main currencies are proving to be remarkable in their own way, with Bitcoin and Ripple following an upward (if volatile) trajectory and Ven exhibiting extraordinary stability. [See Funds and Syndicates]

In addition to being "math-based" currencies, both Bitcoin and Ripple are demand oriented, which means that a relatively fixed supply of coinage is available at any given time. As more users demand the currency, the supply remains stable, and prices go up. This basic economic law has been at the heart of the extraordinary rise in price of Bitcoin over the last two years, and is fundamental to understanding the volatility inherent in the currency.  Similarly, a "fixed" but much larger supply of Ripple has been announced, and while still very hard to get, it does follow a similar trajectory around demand.

On the other side of the virtual coin, Ven is less a demand based currency and more of a supply currency - where the supply of the currency is determined in conjunction with demand, and based on a basket of real assets managed through a central reserve.  As such, supply of Ven is both limited to fundamental assets, and can be expanded as the underlying reserves grow through purchase demand.  Since Ven is highly diversified, this has so far manifested in extreme stability when compared to other financial assets - especially virtual currencies.

The results indicate very different outcomes between the major virtual currencies - with Bitcoin and Ripple being great for traders and those looking for asset appreciation Ven being a wonderful store of value, environmental asset, production trade currency and the ultimate virtual reserve. 

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