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19 Oct 2018


Digital asset market: Liquidity issue heightens price volatilities, technology news is most influential factor (Business Brief No.3766)


  • The digital asset market is facing an inadequate balance of assets and a lack of liquidity in its trading.

Currently, Bitcoin is the dominant digital asset that captures more than half of the market; its market share is by far larger than the second and third currencies, i.e. Ethereum and Ripple each of which accounts for 10 percent of the entire market. Accordingly, factors affecting Bitcoin prices are highly influential to the overall digital asset market value and also the investors' sentiment. Meanwhile, the market volume of digital assets is rather low because a large amount of digital assets is in the hands of a few investors who buy digital assets for long-term speculations. Given that the accessible supply of digital assets is limited, their prices are highly volatile.

  • Important factors that influence digital asset prices include news that affect the popularity of digital assets and cybersecurity.

Important factors that affect the digital asset market are those which reflect the likely adoption of the digital assets. Supervisory regulations could be among those factors as they will result in the possibility that the digital asset market can be successfully linked with the conventional financial system. Moreover, factors related to cybersecurity will also have an influence on the overall digital asset prices. With the technology system to support digital assets being new to most people, the security image is more important than that of other general assets, and any negative news could produce significant effects on their prices.

  • There are also other variables that affect the prices of specific digital assets, namely the development of technology systems to support digital assets and business agreements related to corporate digital asset networks. Between these two factors, news on technology system development has more weights from investors than the issue concerning business agreements.

Differences between impacts on digital asset prices may be in one part due to external factors, such as market conditions, and on the other hand, owing to the issue of a supporting technology system. These issues are associated with greater uncertainties than the issue of income generation in case of successful development. Ultimately, digital asset trading is considered a high-risk investment that should be conducted with great caution. Investors should keep a close watch on the progress of technological development while always taking into consideration the liquidity issue before deciding to invest.​