- Bitcoin volatility is a big problem, writes our head of research Dan Ashmore
- Volatility is the lowest since January, but less consolation when it comes to Bitcoin’s real-world utility
- For Bitcoin to reach its potential, it needs to be bored, Volatility close to gold’s famously stable return profile
relatively calm inside Bitcoin But it doesn’t last long. And it’s a massive problem.
First, let’s look at short-term volatility. Because I’ve noticed it’s gone down a bit in the last few days. Plotting month-to-month volatility on an annualized basis, he is at the lowest level since January when this small surge in Bitcoin started.
But don’t confuse it with a stable market. The cryptocurrency market is still very fickle and can swing back and forth at dizzying speeds. Volatility is still close to 50%, which is insane under normal market conditions.
Perhaps a better illustration of this is when Bitcoin’s daily returns are plotted against that of Tesla. Tesla is the most extreme member of the S&P 500, and its stock price is more volatile than the CEO’s Twitter feed. . Comparing his volatility to Tesla is like comparing his ability to run a football team to Todd Bawley (seriously).
Yet, Bitcoin’s daily price volatility not only matches Tesla, but usually beats it.
In fact, if you plot bitcoin’s volatility over a longer period, you’ll find that these dormant periods occur, but they rarely last long. Bitcoin and volatility look like Frank Lampard and Chelsea – Occasionally apart, but know they’ll be back eventually.
Undoubtedly, volatility is one of Bitcoin’s biggest drawbacks. It’s hard to imagine an asset rocking back and forth while achieving a near-store of value.
If Bitcoin’s ultimate vision is some kind of digital gold, it has a long way to go. Flipping the previous Tesla-to-gold comparison is more apt, revealing a chasm between the two assets.
Obviously this could all change in the future. I don’t have a crystal ball As for Bitcoin’s ultimate vision, as it stands, it has achieved nothing and must.
The discussion generally points to developing countries. Bitcoin could offer a bigger place to store one’s financial assets, they argue. Again, this may prove true in time, but even a collapsing currency like the Argentine peso isn’t as volatile as Bitcoin. A gradual decline like the peso (and I’m using a little liberal gradual there) would be at least easier to plan for than bitcoin could literally go 20% lower in a matter of minutes there is.
Bitcoin can handle such massive price volatility, but it doesn’t help anyone. That argument now favors stablecoins pegged to fiat currencies like the US dollar. Now, their flaws could fill a whole new article I won’t touch on here, but the gist is: Bitcoin is literally useless during periods of high volatility like it is now.
My friends often make fun of me by chatting about gold and analyzing gold price factors. boomer, they call me. And it’s fair – gold is boring as f**k, and looking at its price chart is like watching paint dry. Gold is a store of value, so it shouldn’t print profit and loss to excite Robinhood investors. Otherwise, it cannot fulfill its role.
Bitcoin is the same. Take out one by one from the gold book, bored. Until that happens, this mythical asset means nothing but idle speculation.