Before you roll your eyes, there are no stupid questions, remember? Bitcoin has shown itself to be highly volatile since its creation, granted. Yet, it’s not entirely unrealistic that we can overcome Bitcoin’s volatility. Let’s remember that it hasn’t even reached its 10th birthday yet. We’ve been trading stocks and other securities in an established framework since the 1930s.
Although, perhaps comparing Bitcoin to stocks and other securities isn’t the right move to make. After all, while many people cite lack of regulation as one of the key drivers of Bitcoin’s volatility, the most significant decision so far has to be that Bitcoin isn’t a security. But what is it exactly? A form of payment or a store of value?
Any trader knows that speculation drives the market. The pure hype we witnessed in December 2017 was fueled by frenzied FOMO. Not some amazing change in the Bitcoin protocol or announcement from its anonymous creator. When people heard you could make a lot of money on Bitcoin, it turned into a speculative asset. It ceased to be viable as a form of currency and became heavily subject to FUD.
CEO of decentralized trading platform MARKET Protocol Collins Brown is a former financial trader and cryptocurrency hedge fund manager with years of experience trading (both crypto and real world alike). He asks:
“Why is Bitcoin volatility bad? Volatility is risk. Some risky things are good… The problem arises when there is too much volatility or risk relative to their desired use. People have different use cases for Bitcoin. Many start at a store of value or a new transaction method as the most popular. If the volatility of the price is too high, it’s difficult for either of these to be accomplished. What to do?”
Bitcoin Needs Time to Mature
As with any 9-year-old, Bitcoin needs a little more time to mature. Blockchain technology is still going through its paces and one of the key factors in Bitcoin’s volatility is that it’s still taking baby steps. It hasn’t had the chance to overcome many of the factors that lead to its sudden devaluation or appreciation yet.
