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For a while, the steady increase in the price of coffee has been subject to worldwide discussions – and yet at the end of November an unprecedented price increase brought along.
It was during this period that the price of Green Arabica reached € 6.5 per kilogram, despite falling to € 4.47 earlier this year. Experts now say that the volatility of coffee prices looks like the state of cryptocurrency.
“Although the coffee and the Bitcoin markets may not have anything in common at first sight, is in fact volatility,” says Aurimas Vainauskas, the CEO of “Coffee Friend”, before adding that the continuous price fluctuations of the Two reflect the general dynamics of speculative markets.
Coffee Plays an important role in the global financial market. In 2023, the global coffee market was estimated at the 100 to 200 billion US dollars. The highest coffee price so far was registered in 1977 and amounted to € 6.8 per kilogram. The start of the current increase can be reduced to 2023.
How are the two markets comparable and what does that mean for traders and investors?
Dynamics of supply and demand
Coffee prices are strongly influenced by changes in supply and demand. Countries that produce the most coffee – such as Brazil and Vietnam – play an absolutely crucial role here. Poor harvest, caused by unfavorable weather conditions (for example, drought or frost), can lead to global coffee shortages and sudden price peaks. Conversely, larger harvests can overflow and ensure that the coffee price drops. Due to changes in consumption patterns or economic conditions, demand can also fluctuate, making it even harder to predict the market.
The Bitcoin market is just as susceptible to changing demand. In contrast to coffee, Bitcoin’s range is limited and very predictable: it is set at a maximum of 21 million coins. When it comes to the question, it is susceptible to speculation, influenced as it is by the attitude of investors, institutional involvement, changes in regulations and macro -economic trends. As the question increases, the price also increases; And if the enthusiasm is decreasing, the price follows.
Speculative
Both markets are particularly attractive for speculators. This can lead to further fluctuations caused by unforeseen events, changing attitudes or technical factors in the short term.
The speculators who participate in the coffee market include hedge funds, institutional investors and a variety of other players. Markets acting in Futures enable such speculators to bet on coffee prices, while traders often overestimate the accuracy of weather reports and the impact of geopolitics, which again increases volatility.
The Bitcoin market is very similar: as in the case of coffee, the price of Bitcoin often comes about as a result of general attitudes instead of intrinsic value. Social media messages and updated regulations can radically change the price of Bitcoin within a few hours. Moreover, due to the relatively low market capital, individual transactions can also have a significant impact if they are large enough.
External factors and unforeseen events
The coffee and bitcoin markets are both extremely sensitive to different external factors and unforeseen events.
The close relationship between coffee prices and weather conditions has already been discussed. A single case of unexpected prince in Brazil can destroy a large part of the global coffee harvest, resulting in a dramatic price stick. The same applies to political unrest or changes in export policy: such factors can disrupt the supply chain in coffee-growing countries, so again lead to fluctuations. “The global delivery of Arabica is influenced by various extreme weather phenomena: in July 2021 Frost destroyed much of the harvest in Brazil, while Colombia was subjected to 13 months of constant rainfall. Not to mention Ethiopia, which has suffered droughts for the past five years, “notes the CEO of” Coffee Friend “Aurimas Vainauskas.
Similarly, the price of Bitcoin is strongly influenced by technological progress (such as blockchain protocolupgrades) and other external factors, such as the attitude of local governments towards mining or cryptocurrency exit risks. Unforeseen events can also play a role: these can include large cryptocurrency platforms that collapse or favorable changes in the regulations that come into force, with the latter often results in huge price peaks.
Lack of predictability
Due to the complex interplay of various factors, both coffee and bitcoin prices are extremely difficult to predict.
When it comes to coffee, sudden changes in weather conditions, geopolitical risks and the actions of speculators all contribute to the volatility of the market. Although traders expect a good harvest, for example, a sudden drought or an outbreak of vermin can result in unforeseen market shifts.
The Bitcoin market is just as unpredictable: it can be influenced by general attitudes, macro -economic trends and changes in regulations. Advanced technical analysis tools cannot be much help either, so huge profit and massive losses are both just likely.
Volatility and both opportunities and risk
The volatility of the two markets creates both valuable opportunities and considerable risks.
Producers and buyers can protect themselves at sudden price changes with the help of futures. Speculators, on the other hand, benefit from such volatility and often use price fluctuations to their advantage.
Bitcoin fluctuations attract people who are looking for a high return, but long-term investors tend to stay the market. For their part, to reduce the risk or profit of price volatility, institutions often resort to financial derivatives, such as options or futures.
Although coffee and bitcoin may seem to be separated, the common characteristic of price volatility reveals the similarities between the two markets. Both are sensitive to changing supply and demand, market speculation and external shocks. “Whether it is the aroma of a freshly brewed cup of coffee or the digital blockchain revolution, both can serve to illustrate how unpredictable the financial system can be,” concludes A. Vainauskas.