The Myth of Bitcoin Volatility – PANTS
I’m not here to deny that the cryptocurrency market often undergoes swings in a day that take the S&P500 months to replicate. I’m also not about to claim that I can predict prices even remotely accurately. It’d also be a lie if I said that the future of crypto is not uncertain.
What I am here to say is that we all need to chill out about all the swings and bubbles. All of this is more or less part of a natural cycle that comes with blockchain technology being in its speculative stage. It’s still a wild west out there, with big promises but little proof it can deliver.
Stories of early adopters becoming overnight millionaires in just a few years or even months sounds like a crazy “only in crypto” story. Except… you can do that with stocks too. Kinda. Try investing in a startup that grows up to rule the world’s video streaming. I’ll admit though — Netflix’s return over ten years was still underwhelming when put on Bitcoin’s scale. For the many trying to become millionaires off blockchain investments, $110,000 is almost chump change.
So why’s Bitcoin so much bigger? Simple: it promises to change the world. Cryptocurrency is an existential threat to the entire economic, even geopolitical, system. I don’t recall Netflix ever saying they were going to dismantle economic bureaucracy and forge a new era in human history. It makes sense that the former would go much crazier. For the same reason, the market is highly emotional. Fear is extremely influential. And yet… a consistent trend line can still be drawn through it all. Just use a logarithmic curve rather than a linear one.
That’s not too far off from a normal logarithmic scale! There’s even some basic patterns to observe. Bull markets, bubbles, and long bear markets are all there. There’s even explanations for the causes of these. Even through all the crazy market cycles, Bitcoin is still moving in the same way: up.
So what’s all this investor fear about losing all your money? Admittedly, that is a really large range. 34,000€ and 3000€ being in the same range is… not terribly comforting. But if the log scale is anything useful, mathematics alone will ensure BTC reaches 15,000€ by 2022. Fear of losing all your money here is not fear of the market, but the fear of something else entirely…
In general, after the speculative stage the price comes to hover around its actual value to society. Cryptocurrency is not there yet, so prices are almost entirely speculation and have nothing to do with their value to society. VeChain founder Sunny Lu said this best.
What you’re scared of is not the markets, it’s that cryptocurrency is ultimately worthless. Maybe you’re scared of the government regulating it. Maybe you’re concerned about its scalability issues. Maybe you don’t even like blockchain’s vision for the future. These are valid concerns and I encourage the skepticism, but I’m not going to debate those with you today.
Obviously if any of these concerns make Bitcoin fall flat, the logarithmic curve will break and the market will come crashing down. Maybe it’ll come back, but it won’t be in the way we know it as any longer.
When you invest in any blockchain project, you’re essentially placing a bet that the technology will prove useful in the future. Bitcoin hasn’t been shot down yet, so as it stands BTC will continue to follow its logarithmic curve, altcoins with no use cases will fall flat during bear markets, and useful altcoins will shoot up and follow their granddaddy Bitcoin. This should continue as long as Bitcoin dominance is a concept.
For blockchain creators, having your coin lighter on the volatility is a cool brag and it’s going to make investors a lot less scared of you. Reducing volatility is possible, but it’s not possible to completely patch the problem yet. The good news is that volatility is only a temporary problem. A general range is mathematically calculable and once we leave the speculative stage, Bitcoin will be a true safe haven asset.
Published at Sun, 22 Dec 2019 22:22:45 +0000
{flickr|100|campaign}
