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Will Bitcoin volatility last forever or not?


A debate has ignited these days about the future of bitcoinand in particular its distinctive volatility.

Bitcoin: doubts about volatility

As far as the years go, Bitcoin price has been particularly volatile.

Excluding the first years, that is, those before the first halving at the end of 2012, the annual excursion between highs and lows has been decidedly high.

By example, in 2013 it fluctuated between $13 and $1,100while in the following three years it fluctuated between $170 and $1,000.

In 2017 it ranged between $750 and $20,000and in the following three years it moved in a range between $3,200 and $29,000.

However, since the bull run of 2021, things seem to have changed, because the oscillation has been between $29,000 and $69,000which is much lower than 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 price volatility will actually inevitably decrease, while others argue that it will remain high. There is also the intermediate hypothesis in which it will decrease while remaining significant.

Those who argue that it will remain high do so because they consider volatility to be an inherent feature of the Bitcoin price, as the creation of new BTC It is totally inelastic to the market. But the difference between volatility as high as it has been in the past and volatility that is merely significant but not outright is remarkable.

For example, Francesco Simoncelli notes that, over time, the volatility of gold-backed currencies has also moved 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 of the coins current trusteessomething like gold itself. So if the inflation rates of gold-based currencies were also once very high, but over the decades have faded a lot, then perhaps the same could apply to Bitcoin. In addition, as of 2021 this dynamic already seems to be underway.

Yes effectively Bitcoin were intended to partially replace gold in financial markets, for example as a form of protection against ultra-expansive monetary policies by central banks, then the dynamic that has seen gold coin inflation fall sharply over time could be repeated in the market. Bitcoin price as well, thus reducing volatility in the medium and long term.

However, it is worth noting that the success of BTC in the financial markets is precisely and mainly due to its volatility, which makes it a very 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 assumption, namely that volatility will decrease but not go to zero, should not be neglected at all.

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