Bitcoin Forum

https://voxeu.org/article/some-simple-bitcoin-economics



I personally think the volatility is because so few are trading it. The more people trading a currency, the less likely a single person can move the price either with a pump or dump. It's very hard for a single actor to move the dollar against another currency for example because they'd need huge firepower.

Unfortunately trading volumes have decreased since Dec 2017, so the volatility will remain.

That's not really about the amount of traders but about the trading volume and market cap. No matter who is regulating the market but until for example the market cap is only 1$ nothing can ensure that tomorrow someone won't buy it for 2$ and make this currency extremely volatile.  First you need to get a mature market and only then you can think about the ways of regulating it.

I don't really agree with you! The volatilty of bitcoin's price is not a result of any single action! There are many reasons behind it and it is almost impossible for a trader to manipulate the market in large quantum. Doesn't matter how many or how less traders are active in the market!

I can recommend an article to you which has a detailed explanation on bitcoin's volatilty. Read below,

https://www.fxcm.com/uk/insights/what-causes-volatility-in-bitcoin/

Apart from these reasons, there are other reasons as well which can play a big role in volatility, on which we may not have any visibility! It's not easy to manipulate a billion dollar market by some traders!

I guess volatility will always be there.  Since the market is commanded by supply and demand and with people changing stance every time they saw an opportunity, I do not think that volatility will be gone, it will only be minimized once it is traded by more people.  Even with regulation, since  Bitcoin price is driven by speculation, it will only do little towards it.

Stocks like tesla motors (TSLA) displayed higher volatility than bitcoin over the past few months. Official state mandated fiat currencies like venezuela's bolivar are currently hyperinflating at outrageous rates, far more volatile & unstable than any crypto, despite falling under the jurisdiction of a central bank.

Notions of bitcoin and crypto being prone to massive price swings, substantially more chaotic than other currencies or investment vehicles, may be an urban myth at this point. Many of these published pieces appear to make zero attempt at quantifying their claims. They cite no metrics for bitcoin's volatility in 2018 or 2019 and make no attempt to contrast these numbers with stock market volatility, fiat currencies or draw any useful comparison. It doesn't amount to more than a "take my word for it, bitcoin is very volatile" face value claim. Which constitutes a low standard in terms of journalism and publishing.

In terms of history, the zimbabwe dollar and deutsch mark both hyperinflated despite central banks which could suggest centralized abstracts of management are overrated and fail to provide guaranteed stability. Our 2008 global economic crisis occurred despite the existence of central banks. The united states being more than $20 trillion in debt might also be partly attributed to central banks as architects of fiscal and economic policy. If skepticism is indeed our goal, there are many questions about OP's study which could be raised. IF.

The volatility within the bitcoin markets is way more than just the trading action. The technologies itself is still at an early age, we do need to understand it is a revolutionary technology. It requires a lot of time for the mainstream to be able to comprehend the system, not to mention the lack of user-friendliness. Nevertheless, I'd agree what the trading part that you mention is indeed one of the few reasons that make Bitcoin volatiles. Personally, I'd believe in the future if mainstream already well-understood and get used to Bitcoin, the volatility will decrease.

Volatility has always been a problem for cryptocurrency especially now that people don't consider crypto as a currency but they consider crypto as a digital trading asset and they don't care about the development of crypto as a currency because they only care about the benefits they can get with crypto trading so that prices will not be stable until these people stop to assume that crypto is a profitable asset.

They're talking stability but look at a period like the one from January to April when we're crawling to the $3,500 on average. The price has been stable and we didn't get any high volatility. So it's totally possible, who knows if in the future the price stays stable for several years.
Fuck a central bank, it's the last thing we need.

That is true, but the real thing that can make the price unstable is that there is already a huge amount of exchange, so traders are also scattered, causing the previous exchange to be crowded to be deserted as a result of each coin making their own platform.

It's not actually just about the number of people trading. There are a lot of factors that affects the price movement since cryptocurrency price is derived from market activity. People within the market dictates the price and there are a lot of factors affecting market activity.

I honestly think that there's no need to have a central bank for crypto. It will beat the purpose of decentralization if that is the case.

I also don't think is a good comparation with a bank, because bitcoin volatility is bring by people who trade and some of them but more and this cause the price goes high and when there is a lot of seller make the price goes down.

At some point the elasticity of the price will decrease because of how much we have gone up already. Bitcoin won't continue doing x10-x100 bull cycles endlessly. I'm sure we have a few bull runs left before we get there.

Gold is at that stage already. In order to combat the lack of volatility, brokers offer x500 leverage multipliers, which make BitMEX's x100 leverage look like a joke. Bitcoin will follow a similar path in my opinion.

I actually enjoy the wild swings of this market because they offer an interesting trading opportunity, and it reminds me of how relatively early we still are. These revolutions happen only once every few hundred years.

It's not rocket science. The volatility comes from a tiny size, shit exchanges and an audience that doesn't know what to do with it. Volatility goes down when it's enormous and established.

Last time I checked gold didn't have a central bank either and that's welcome in many a hall of power.

It's good you're mentioning stocks and volatile currencies, because they give us a clue why Bitcoin's volatility is a bit different.

For example, hyperinflationary currencies most of the time go only down against other assets, only the speed of the downfall changes sometimes, but often remains rather predictable. As an example, in the last years (since 2008 approximately) the Argentine Peso went down every year between 20 and 40% against most goods (not necessarily against the US dollar), only once (2018) the loss was higher.

Stocks, on the other hand, are more similar to Bitcoin as they show strong rallies and crashes, but there is a big difference: For stocks, there are lots of metrics to evaluate if they're "overvalued" or "undervalued", as they correspond to shares of real companies.

In Bitcoin, however, we have none of these indicators, as there is no "real" company behind Bitcoin. Bitcoin's value is tied only to supply and demand, so we have to try to get information about these two indicators. Transaction activity and trade activity are indicators we could take to evaluate its adoption and thus "demand", but these indicators are very weak. Both indicators regularly go up if there is a spike in volatility in price, but not necessarily that may be a bullish sign (although long-term transaction activity growth is normally bullish).

So speculators are much more prone to FOMO and crash panics because they don't know where they have to expect the Bitcoin price. Many of them sell simply when the price goes down, and buy if the price go up, showing thus a very cyclic behavior, which favours volatility.

If Bitcoin was used more "as a currency" and less for speculation, volatility would surely go down. But there is a long way to go until this point.

The Fiat central bank has been controlling for a while, what achievement have they gotten on it other than the currency falling into the pocket of few people to enrich themselves at the detriment of the poor people. We don’t need the involvement of central bank in cryptocurrency because once they get involved; the coin will be regulated and become a stable coin.

We need the volatility now to really be able to make money through it, when bitcoin speeded up to almost $20,000 in the last bull, if the market had not fallen back, would there have been chance for holdlers now to buy and become rich in future ? Even if BTC will become stable, let it gradually work its path through it in future when we have massive adoption.

Think again ...

If the main reason to buy Bitcoin was to "become rich", why should people buy it once it becomes more stable?

Bitcoin has to evolve, somewhen, from a "speculative asset" to a "currency" or even a "store of value" (which it still isn't, as of now, see this tweet from @MustStopMurad (https://twitter.com/MustStopMurad/status/1022169639386836992)). But how? I consider that the most important challenge for the community in the coming years. But I'm almost sure that promoting BTC exclusively as a tool to "get rich" is counterproductive for that goal, because it does not only boost volatility, but also limits the audience of Bitcoin to speculators.

This is really too funny because its the opposite of how I consider FIAT troubles, volatility is mostly a result of central banks and by extension government interference in economies to favour political ends over business and currency stability.

Crypto in some part owes its existence to the ongoing failure by central banks so it seems very ironic that BIS is calling for crypto to align itself with more traditional interests.   I cant blame them for seeing things that way.
Nothing has to be done to address their concerns, its already the case that some blockchains do have a centralised kind of authority that at least in part regulates value.   Thats how I see XRP with giant reserves locked until a future date and at their control they will handle value and attribute it to who they see fit.    If BIS is correct an alternate system will overtake BTC as surely BTC is entirely open to competition and so replacement by better systems.    Any standard even if new if less volatile (though this is contradictory some, growth is volatility?) I would expect to take over in time as there is benefit to business from a reliable standard, we shall have to see if that is what occurs next


That main reason for Bitcoin is not to become rich, if that were the only reason it would not continue.   Thats a large part of criticism for it and why many expect it to fail 6 years ago or more as it was famously gaining alot at that time.   
It could easily allow people to be better off then they might be otherwise, thats feasibly the result of any well operating system and stability is not a negative to that

There is always volatility in the price of an asset. People here assume that once the price of Bitcoin becomes "stable" there is no way to make money anymore, but that's exactly what leverage is for. How do you think institutions trade fiat currencies with 0.1% swings? You crank up the leverage and you're good to go.

People here need 10-20% movements in order to make money, but you can make just as much money with 0.1-0.2% fluctuations.

I believe that the volatility will always happen from day by day, but I don't think that it's because a few traders who trade in the market. I am sure that in every exchange, many traders have to try to make a profit.
I agree that it is almost impossible for one person to moves the price to the price he wants because the volumes in the market will bigger than his funds.

Volatility will never be removed on bitcoin and crypto and we certainly don't need any central banks to control the flow of coins in circulation and the value of each coin as well. That's the beauty of a decentralized, deflationary currency: it cannot fail since it has no central point, but volatility is also a boon of cryptos as due to this, merchants can't meddle with it, moreso accept it on their platforms as a form of payment. Should they accept it, they still need an intermediary to ensure profits which basically just removes yet another portion of the profits, too.

As liquidity and value augment volatility will decrease.

I agree with others that while high volatility does not do much good to the market, it is better than having a central bank. Firstly, the bank does not guarantee stability. The economy can collapse at any point, and gradual devaluation eventually leads the currency to become worthless. Fiat is a very bad system because it relies on people not making stupid decisions while being absolutely rational is simply not in our nature. Cryptocurrencies allow to take out the human factor. It comes with the cost of potential volatility, but I also think that it is possible to overcome it eventually and have a more or less stable currency.

The Bank for International Settlements correctly pointed out that the high volatility of Bitcoin and other decentralized cryptocurrencies are associated with the lack of regulation of cryptocurrencies. Usually its price is regulated by the central bank of the country. For cryptocurrency, this method is not suitable. Its main difference from the usual currency is precisely in the fact that its price regulation is absent on the part of any authorities.
The level of cryptocurrency volatility will not be affected by the number of participants in this market. Anyway. with the increase of its participants, the level of price volatility will not fall. Demand and supply in the cryptocurrency market, which forms its price, will never be constant, which means its high price volatility will always be.

Liquidity I thought should enable volatility as it means vast amounts of available currency to sell is a possibility.    What I really see as the solution is greater business done in BTC regularly, so proper trade routes or something similar which is where speculation would be setup as arbitrage in that regular flow rather then people sitting on exchanges second guessing each other.   What happens with too much speculation is whispers become echos affecting the market just on perceptions rather then actual demand and supply from usage by individuals.     Put simply I rate the ratio of users to speculators as more important then a false brake of a central bank type body

Well we have seen how Bitcoin has evolved to just a creation by Satoshi to be used as means of payment to become the top assets right now. So if you are going to look at it, no it wasn't meant to get rich but as an alternatives to 'monetary system'. But now everyone is jumping on the bandwagon to make more money from casual investors to institutions or it will be very difficult for the price to be stable.

But going back to BIS statement, volatility is part of the market now, we don't need some authority like central banks, because it will totally go on the premise of decentralization.

I have just the opposite opinion. IMO, the volatility is quite high, because too many coins are being traded. Look at the exchange volumes. During the past 24 hours, more than $15 billion USD worth of BTC were traded in the exchanges, and it represents close to 15% of the total market cap. Now compare this to gold. The total market cap is close to $7 trillion, and out of that the daily transaction volume is only around $100 billion. I believe that this is one of the reasons why gold is less volatile than BTC.

Central bank 🏦 as a possible solution to a volatile crypto currency is a bad idea and the worse scenario that will happen to bitcoin. It will end its purpose and be controlled over by the financial elites and the government. We won’t want that to happen.

I’d rather have a volatile bitcoin in many years as it exist than give the opportunity for the greedy to manage and regulate it. It would be a game over move and Satoshi Nakamoto’s vision about anonymity will all go to waste.

Having a central bank to control Bitcoin will make it just another fiat money...it maybe can solved the extreme volatility happening from time to time but will make it controlled by few people and therefore going against its very nature. As in anything man-made, there can be advantages as well as disadvantages depending on someone's views of things and that is the same thing with Bitcoin. In my take, this is a free marketplace so we let Bitcoin be volatile though I am welcoming regulations to make sure that all players are behaving well and not doing shenanigans that can undermine the trust and confidence of investors and traders.

I agree to let bitcoint stay in its original nature. with a system that contradicts the current system, I don't think it is an obstacle to being able to use it according to its function. so that the community can judge between the two systems, the advantages and disadvantages

Volatility is actually destructive because it discourages genuine exchange by large price differences over short periods of time.   If we are wanting BTC to be its own currency with prices quoted in BTC not just dollars and transmitted briefly via BTC then its needs to be more predictable

Ive read a few times recently the IMF will link SDR and XRP to allow crypto exchange of FIAT that way.   I dont know theres any truth on that specifically but IMF has spoken about crypto or blockchain technology being a valid future direction.

As stated by BIS I doubt they ever allow or trust a stateless unbound crypto blockchain to be used as a reserve asset for national banks or anything like that.    FIAT is based around political advantages and alliances between countries and those leaders think this is very much a positive while its under their control.
Iam biased towards capitalism which is power and value with the people even the smallest earners numbering in the billions and who are the real economy not the politics and false value attributed to political debt.

When BIS criticises BTC in this way they are just showing themselves to have different objectives to capitalism, to the common people and to plain business.  

I agree with the Bank for International Settlements that the volatility of a cryptocurrency is related to the absence of a central bank or other body regulating its price. Moreover, if the national money of the states did not have such bodies regulating their price, then their price volatility would not be as high as it is characterized in cryptocurrency. The national money of the states is nevertheless tied to the state of the country's economy and therefore their volatility cannot be large anyway. Cryptocurrency does not have any limitations in its price at all, its price is determined only by the ratio of supply and demand, and these indicators are completely unpredictable.

Centralized bank for bitcoin means they will be able to print bitcoin as much as they want.  They could also censor transactions,  make stuff less transparent and possibly remove immutablity.

Or they probably looking for more effective tools to keep prices stable?

WHAT A SHOCK! Of course the volatility is based on the lack of central bank. We are fine with the volatility and increases and decreases of bitcoin because there is no power that controls bitcoin for us and we (literally "we" as in all people) control the market ourselves. There is no way we need to keep going up for shareholders, there is no way we keep doing something illegal to profit ourselves as a whole, there is no collective shady business going on to get ourselves rich while saying screw everyone else. Central banks do all kinds of dirty stuff and when they keep the economy at bay they are doing it for themselves not for us. This is exactly the reason why we love bitcoin and we are fine with the causality of volatility when it comes to going up and down frequently.

It's probably partially true, but it's certainly not the major factor in this case and also, not a detriment but rather a benefit of bitcoin in my opinion.

You really need to look no further than precious metals to find an counterexample of an asset class that has been extremely stable, more stable than even the majority of fiat currencies around the world, yet operates without a centralised entity that manages the circulating supply of gold or silver, nor the interest rates associated on them. Furthermore, bitcoin is without a central entity *by design*. Would you rather have a currency that is a long term store of value but fluctuates in the short term, or one that will depreciate in the long term but seems to be 'stable' in the short run? Stability is relative, after all.

At the end of the day, I think as others have said, the size of the bitcoin market and the fact that it's still used for investment purposes mostly contributes to the volatility of BTC, not the fact that it doesn't have a central bank underlying its structure.

they actually know, but it still takes time to realize and improve it. with the potential that is happening now, of course bitcoin is very suitable for investing. especially with users who are still very few, so the opportunity is still wide open

It is unlikely that an increase in the number of participants in the cryptocurrency market will be able to affect it in the direction of decreasing its price volatility. The main factor here, as in regular currency, nevertheless remains the lack of price regulation, which is carried out by central banks with regular currency.
Cryptocurrency price volatility is its main advantage and at the same time one of the main disadvantages. While we do not know which way cryptocurrency will go.

I don't think Bitcoin is considered a coin that is traded by few people during the day. One day bitcoin has more than $ 14.7B in transactions and you say it has low volume?
The great upheaval that took place is because the manipulation has not yet been punished and organizations are constantly manipulating it to their advantage.

This is not even a bad argument, I mean he says it like its something bad but in reality its actually something very very good for us. Yes, the volatility is a price we have to pay for lack of a central bank but at the same time its something we agree that instead of having a central bank we should just let it be volatile and that way we can at least not have some organization control the currency instead of us.

Nations literally let central banks control money for them and we have seen what has happened to all national currencies, most of them are horrible and the ones that are not horrible are still worse than what they used to be. That is why I honestly believe that I am definitely in support of having no central banks and just keep getting ups and downs all the time.

I won't disagree with them to a large extent because there is an element in it. The fiat we know is able to remain relatively stable because of government interventions and these are not in small effort. The effect of this was obvious sometimes in a country where government decides the forces of demand and supply of the market determine the exchange rate, within a few month, the entire economy was in shambles and the local currency losing its value really fast. Putting it in perspective is the local currency depreciating against the USD by 10% everyday until the government decides to intervene by pumping forex into the market in other to keep the effect at bay and they are still doing it.

You are also not wrong that when bitcoin is fully traded the volatility can be nipped but really that is a long way down if there is a body established to ensure that the balance is maintained because the market cannot be trusted in the hands of individuals and capitalist to the detriment of other members of the society.