A less volatile cryptocurency, what would it take to regulate its own market?

[Stampbit]

Right now we are seeing a huge price jump and naturally people think that this means bitcoin is doing better than ever, but bitcoin first and foremost is a currency and a currency's greatest strength is its stability, which means at this moment bitcoin is doing worse than ever before. How could a cryptocurrency control volatility?

[tutkarz]

Right now we are seeing a huge price jump and naturally people think that this means bitcoin is doing better than ever, but bitcoin first and foremost is a currency and a currency's greatest strength is its stability, which means at this moment bitcoin is doing worse than ever before. How could a cryptocurrency control volatility?

bitcoin will be perfectly stable when there will be no other currencies.

[justusranvier]

How could a cryptocurrency control volatility?

What is it that causes exchange rates to be volatile?

[nobbynobbynoob]

Bitcoin is still in the early-day process of being bootstrapped into the Internet and mainstream economies. If this phase transitions successfully, bitcoin will be more stable, probably at an exchange rate 100x or more higher than today's. $200 is very small change indeed: call it "two bucks".

[yogi]

One way to create a less volatile currency would be to float the block reward according to hash rate. So as the value goes up it becomes more profitable to mine, more coins get produced and inflation should stabilize the rise. But you would need to determine a target hash rate for the network, and I don't think there is any other way to do this apart from pluck an arbitrary number out of the air and have it rise over time in accordance with Moore's Law.

[bb113]

I have yet to see one person making this complaint fill this out:

To anyone thinking of complaining about the volatility, please fill in the blanks in this image and connect the two dots in whatever way you think would be "ideal for bitcoin". Then explain why you think such a scenario (e.g.,  straight line) is plausible.

[VforVictory]

The fact that it's decentralized and has no backing authority is very likely why the price of BTC will never be stable. Nearly every real currency has backing, whether it is silver/gold or governmental authority. Of course, nobody wants authority in Cryptoland so your choices are non-existant for a stable currency.


Even if it gets a use it is still going to be volatile, and it's price is still relative to the Dollar.

@nobby, 200$ is enough to feed an impoverished family for a year. Hardly "Two bucks" 

[jaime]

I see it this way: bitcoin is stable, what's really unstable is the old system.

[virtualmaster]

Right now we are seeing a huge price jump and naturally people think that this means bitcoin is doing better than ever, but bitcoin first and foremost is a currency and a currency's greatest strength is its stability, which means at this moment bitcoin is doing worse than ever before. How could a cryptocurrency control volatility?

Don't compare bitcoin with a fiat currency.
Compare with gold then you will understand better how it works. Gold can be used for exchange but also to store value because the supply is limited and with the time will be more expensive to mine it.
Bitcoin is even more limited then gold so it is more suited to store value.
Of course there is another factor that bitcoin still didn't filled all the market gap where it is needed.
Once it will fill this market gap it will grow much slower.

[bb113]

Note the chart says "value" on the y axis and you can choose your own units. Does not have to be USD. Use 40s of malt liquor or pizza rolls.

[Zangelbert Bingledack]

Brilliant chart. There is indeed simply no way to reach mainstream adoption without crazy growth, and crazy growth absolutely means volatility. There is no point lamenting this.

Likewise, whatever Bitcoin supposedly loses as a currency during rapid price rises (if you even buy this questionable notion*), it must by the same token gain as a store of value. Bitcoin's function as a store of value is probably far more interesting to high net worth individuals, by the way. Especially when that store of value is invisible, can't be confiscated, operates globally without need to be transported or transferred, can be made untraceable, and has no counterparty or legal risk.

Since Bitcoin's growth to mainstream adoption must be jagged, the store of value functionality and the currency functionality may have to take turns on the way up, to some degree.

Not to mention that BitPay and options markets mitigate any risk here for merchants, at least, and in theory for buyers as well.


*Sure, if the price has been stable for a long time then starts growing rapidly, many people will hold off purchases temporarily, until they've made so much more money that they are motivated to spend.

[kerogre256]

I see it this way: bitcoin is stable, what's really unstable is the old system.

This old system is fucked, and unstable bitcoin is very stable 25 every 10 minutes.

[pretendo]

How could a cryptocurrency control volatility?

What is it that causes exchange rates to be volatile?

information, adoption and the feelings of the market constantly changing?


There's nothing inherent to any asset that makes it volatile. It's just the whims of the market participants

[Snowfire]

The ideal graph for a currency would be a flat line, achieved ASAP after genesis. Assume this is measured against some good benchmark (I won't get into arguing about what that might be--that is beside the point.)The exact value  of one unit is irrelevant, as long as it is stable. A flat line would be boring, but boring is what you want for a currency.

[pretendo]

The ideal graph for a currency would be a flat line, achieved ASAP after genesis. Assume this is measured against some good benchmark (I won't get into arguing about what that might be--that is beside the point.)The exact value  of one unit is irrelevant, as long as it is stable. A flat line would be boring, but boring is what you want for a currency.

Well, no, not true. There is a supply and a demand for a currency just like anything else. Currency is just like any other security, and changes in price mean changes in the optimal amount of investment in it at that time.

[justusranvier]

There is a supply and a demand for a currency just like anything else.

Exactly.

[Snowfire]

There is a supply and a demand for a currency just like anything else. Currency is just like any other security, and changes in price mean changes in the optimal amount of investment in it at that time.

Obviously. But one of the questions was what would be ideal; I am not claiming that real-world currencies are ideal (though some are better approximations than others,)

[DeathAndTaxes]

Brilliant chart. There is indeed simply no way to reach mainstream adoption without crazy growth, and crazy growth absolutely means volatility. There is no point lamenting this.

This.  Exactly.

For those who can't handle this concept here is a simple solution:
1) take the amount of bitcoin you are comforable seeing be worth nothing (yes absolutely nothing) someday
2) put the bitcoins from #1 on a paper wallet, multiple backups, safe storage, etc.
3) sell all the rest of your bitcoins
4) wait 10-20 years.

Tada the growth rate will be much more "managable" and with massively deeper markets the intraday volatility will be much lower.  Either that or Bitcoin will be worthless.  Still the problem is solved either way.


Those worrying about the rapid growth and volatility likely would be trying to plan the growth of the internet circa 1972.  "see we just connected the first two nodes.  We anticipate 100 new nodes to connect to this "internet" in the first year ......

WTF MAN?  100 nodes per year?  That is like 5000% growth rate.  BUBBLE, TULIPS, PARABOLA.   You internet idiots don't know anything about stability.  I going to do make my planned internet.  10% growth per year and minimal volatility.  By the year 2202 finally all 7 billion people on the planet will be connected to the planned-internet (although only 4000 in the first 30 years).  It will be a perfect no volatility line from 2 nodes up to the entire planet.

Which likely would have worked out better:
a) the chaotic explosive growth internet based on the free market.
b) the centrally planned internet based on a stability plan to minimize volatility and manage growth.

 

[pretendo]

There is a supply and a demand for a currency just like anything else. Currency is just like any other security, and changes in price mean changes in the optimal amount of investment in it at that time.

Obviously. But one of the questions was what would be ideal; I am not claiming that real-world currencies are ideal (though some are better approximations than others,)

"ideal" is different to different people

[Stampbit]

Those worrying about the rapid growth and volatility likely would be trying to plan the growth of the internet circa 1972.  "see we just connected the first two nodes.  We anticipate 100 new nodes to connect to this "internet" in the first year ......

WTF MAN?  100 nodes per year?  That is like 5000% growth rate.  BUBBLE, TULIPS, PARABOLA.   You internet idiots don't know anything about stability.  I going to do make my planned internet.  10% growth per year and minimal volatility.  By the year 2202 finally all 7 billion people on the planet will be connected to the planned-internet (although only 4000 in the first 30 years).  It will be a perfect no volatility line from 2 nodes up to the entire planet.

Which likely would have worked out better:
a) the chaotic explosive growth internet based on the free market.
b) the centrally planned internet based on a stability plan to minimize volatility and manage growth.

 

Thats not really a fair comparison, if the internet only ever became 100 nodes then it would still be the internet, you wouldnt have sudden outages or massive latency like what we're experiencing with bitcoin's sudden crashes and massive deflation. It might be slower but it would be just as stable and predictable as it was in the early 90's. The fact we're realizing here is that when the price does stabilize, even if everyone trades all their fiat for btc, there will still be massive instability as everyone clamors to guess what the true price of an infinitely divisible non-physical non-backed currency is (hint: there isnt one).