A debate has been ignited these days about the future of Bitcoin, and in particular its distinctive volatility.
So far over the years, the price of Bitcoin has been particularly volatile.
Bitcoin: doubts about volatility
Excluding the early years, that is, those before the first halving in late 2012, the annual excursion between highs and lows has been decidedly high.
For example, in 2013 it fluctuated between $13 and $1,100, while in the following three years it fluctuated between about $170 and $1,000.
In 2017 it oscillated between $750 and $20,000, and in the following three years it moved in a range between $3,200 and $29,000.
Since the 2021 bull run, however, things seem to have changed, because the oscillation has been between $29,000 and $69,000, which is much lower than in the previous two years in which a post-halving bull run occurred (2013 and 2017).
For this reason, there are those who argue that in the long run, Bitcoin’s price volatility is actually bound to inevitably decline, while others argue that it will remain high. There is also the intermediate hypothesis in which it will decline while remaining significant.
Those who argue that it will remain high do so because they consider volatility to be an inherent feature of Bitcoin’s price, since the creation of new BTC is totally inelastic to the market. But the difference between volatility being as high as it has been in the past, and volatility that is merely significant but not resounding, is remarkable.
For example, Francesco Simoncelli points out that over time the volatility of gold-backed coins has also gone from high to moderate.
Bitcoin is often compared to gold and is used as a form of protection against arbitrary inflation of the money supply in existing fiat currencies, much like gold itself. So if the inflation rate of gold-based currencies was once very high but has largely disappeared over the decades, then perhaps the same can be applied to Bitcoin. Moreover, this momentum seems to occur in 2021.
If Bitcoin is destined to partially replace gold in financial markets, for example as a form of protection against ultra-extended monetary policy by central banks, then the dynamics that see gold inflation Coins that decline over time may be replicated in both the price and Bitcoin, reducing volatility in the medium and long term.
However, it is worth noting that BTC’s success in the financial markets is due to its accuracy and especially its volatility, which makes it an attractive asset for speculative purposes. However, in the future speculators may be replaced by long-term investors, or entrepreneurs, and this may give Bitcoin a new and different role in the financial markets.
For this reason, the intermediate hypothesis, namely that volatility will decrease but not go to zero, should not be neglected at all.
