One of the big criticisms of bitcoin by mainstream media and much of the public is its volatility. How can anything that claims to be a currency expect users to put up with 5-10% daily swings in value, or a 70% loss over the space of a few weeks, as happened at the beginning of 2018?
And they have a point. While bitcoin has proven a good long-term store of value (ask anyone who bought it more than a year ago), it fluctuates a little too much for the likes of ordinary folks. If bitcoin grows by another 10x or 100x, and especially if institutional money and derivatives come in, that volatility will be attenuated. Right now bitcoin is just a tiny, $100 billion commodity, which is nothing in the grand scheme of global finance. At $7 trillion – roughly the value of all gold – those swings would be far less, thanks to the deeper orderbooks and higher liquidity. (Though remember: gold itself isn’t exactly stable, despite its reputation as a store of value.)
So how do you get from $100 billion to $7 trillion?
The only realistic way for this to happen is through speculation. Price discovery, turbocharged. Bitcoin needs greater awareness, it needs to consolidate and increase its network effect, and it needs to pick up a whole lot more use cases – not least those ETFs and futures we’ve been hearing so much about. It needs to be used as a global means of transfer, as an asset used in retirement funds and by investment managers.
Speculation is a reflection of its potential: a feature, not a bug. It goes with the territory at this point. Sometimes we overdo it. Sometimes we go too far the other way. Price almost never coincides with value. It’s all part of the process of figuring out – as fast as we possibly can – what we collectively think bitcoin is worth.
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