Volatility Not Controlled Due to Decentralization?

[iamTom123]

I am not really good in my economic classes years ago but one thing I learned back then is that under our centralized system there is an entity that can intervene anytime there is an imbalance with anything. In China, for example, when the economy was overheating (meaning there was a great growth beyond what they manage) the government have to institute actions to somehow control the whole thing as overheating can have many repercussions. This is just one of the many examples of how the government (usually done by the central bank) can intervene in the system for the purpose of correcting and balancing the whole thing. The government can even stop market trading if there is a need to do it.

Now, in the case of cryptocurrency (primarily Bitcoin, of course) we don't have a central bank that will intervene in the system...that means it is primarily driven by the market. And because there is no interventions that can be done, Bitcoin is always experiencing its famous volatility movement.

Decentralization is one of the pillars of Bitcoin and if we take it away it is just like beheading the beast. But in return we have volatility which is somehow hindering more merchants to adopt Bitcoin (though this can also be debatable) and become part of the mainstream.

[pooya87]

in my opinion decentralization has little to do with the volatility or perhaps none even!

the price of bitcoin is so volatile because it is still very small and the price of it is controlled in the exchanges. and in these exchanges the orderbooks are so thin. at the first look they may not seem like it but if you analyze them you can see a rather small amount can change the price a lot.
until this changes and the orderbooks gets more packed with orders which are $0.01 apart and are bigger, the volatility will remain big.

good news is that we are on the right path. volatility has been decreasing. for example back in 2013-4 price could go up and drop down in 3 days as big as 77% but these days you don't see a drop bigger than 20%

[iram1011]

in my opinion decentralization has little to do with the volatility or perhaps none even!

the price of bitcoin is so volatile because it is still very small and the price of it is controlled in the exchanges. and in these exchanges the orderbooks are so thin. at the first look they may not seem like it but if you analyze them you can see a rather small amount can change the price a lot.
until this changes and the orderbooks gets more packed with orders which are $0.01 apart and are bigger, the volatility will remain big.

good news is that we are on the right path. volatility has been decreasing. for example back in 2013-4 price could go up and drop down in 3 days as big as 77% but these days you don't see a drop bigger than 20%

In your example too decentralisation is playing the major part. Different exchanges have different prices because different people put different buy-sell order. This happens all because of decentralization. Everyone has freedom to sell-buy at any price. When majority start accepting that price. Market experiences fluctuations.

User base also has major effect on volatility. More will be the user base less a holder can drive the price and hence less would be the volatility.

[krishnapramod]

In a centralized economy, the monetary base is controlled and changed according to supply and demand, but bitcoin being decentralized, the monetary base isn't controlled by any central authority, limited supply, free market.

Being decentralized, limited supply, fluctuating demand would keep bitcoins volatile, but in the long-term it would become much more stable.

[pooya87]

in my opinion decentralization has little to do with the volatility or perhaps none even!

the price of bitcoin is so volatile because it is still very small and the price of it is controlled in the exchanges. and in these exchanges the orderbooks are so thin. at the first look they may not seem like it but if you analyze them you can see a rather small amount can change the price a lot.
until this changes and the orderbooks gets more packed with orders which are $0.01 apart and are bigger, the volatility will remain big.

good news is that we are on the right path. volatility has been decreasing. for example back in 2013-4 price could go up and drop down in 3 days as big as 77% but these days you don't see a drop bigger than 20%

In your example too decentralisation is playing the major part. Different exchanges have different prices because different people put different buy-sell order. This happens all because of decentralization. Everyone has freedom to sell-buy at any price. When majority start accepting that price. Market experiences fluctuations.
~

it has nothing to do with decentralization! that is the same with any other asset, different exchanges "that are not connected to each other directly" will have different prices for each of these assets. that is where the term "arbitrage" comes from. it doesn't belong to bitcoin! it has been a method of trading for ages because of this difference in prices.

[jseverson]

There are several factors as to why Bitcoins are so volatile, and I don't think decentralization is one. It's still largely supply and demand, and the market is still fairly small. Big holders can make the market move to some degree on their own, and issues like China's ban on ICOs could make these holders a bit jittery. The closer we are to mass adoption, the less volatile it should be. That's how I see it, at least.

[dothebeats]

Decentralization has nothing to do with volatility since before then when the people using bitcoins are still heavily distributed in the West and China, volatility already exist. It's still a matter of supply and demand for me, and user distribution around the world has little to no effect to price movements whatsoever since it's being controlled by the 1% powerful enough to move the markets.

[Yuhee]

There are several factors as to why Bitcoins are so volatile, and I don't think decentralization is one. It's still largely supply and demand, and the market is still fairly small. Big holders can make the market move to some degree on their own, and issues like China's ban on ICOs could make these holders a bit jittery. The closer we are to mass adoption, the less volatile it should be. That's how I see it, at least.

Even if there would be mass adoption, less volatility maybe but its price would just change if there would be a really another cryptocurrency that could at least that has an eye catchy platfrom. If btc is still on the top rank, its price wont be affected if it has no really competition to other cryptocurrency. There had been many issues but still there is still no recognized competition for btc.

[DoublerHunter]

The volatility of the bitcoin is not contrallable and it is not due to the decentralization, it is because the market of bitcoin is depending on the demand of the people who buy and sell bitcoin and that triggers volatility of bitcoin and that is not a good feature for bitcoin because we can earn some money by taking advantage of that.

[stompix]

But in return we have volatility which is somehow hindering more merchants to adopt Bitcoin (though this can also be debatable) and become part of the mainstream.

Yeah, it's debatable and we can see that adoption is still happening.

You will have to look a bit through history and see that nearly all currencies were experiencing high volatility when confronted with a new situation , another powerful currency, global economic growth and all of them experienced this when they were first issued. Even though they were controlled by a central institution.

Bitcoin is just new to the market and it tries to discover it's real price.
One it does so it will fluctuate far less and more because of real economic situations and less because of people dumping on exchanges.

Centralization won't help a bit. Is not working in Venezuela and it didn't work in eastern Europe in the 90's.

[Ilegendph]

In a centralized economy, the monetary base is controlled and changed according to supply and demand, but bitcoin being decentralized, the monetary base isn't controlled by any central authority, limited supply, free market.

Being decentralized, limited supply, fluctuating demand would keep bitcoins volatile, but in the long-term it would become much more stable.

I am not really good in my economic classes years ago but one thing I learned back then is that under our centralized system there is an entity that can intervene anytime there is an imbalance with anything. In China, for example, when the economy was overheating (meaning there was a great growth beyond what they manage) the government have to institute actions to somehow control the whole thing as overheating can have many repercussions. This is just one of the many examples of how the government (usually done by the central bank) can intervene in the system for the purpose of correcting and balancing the whole thing. The government can even stop market trading if there is a need to do it.

Now, in the case of cryptocurrency (primarily Bitcoin, of course) we don't have a central bank that will intervene in the system...that means it is primarily driven by the market. And because there is no interventions that can be done, Bitcoin is always experiencing its famous volatility movement.

Decentralization is one of the pillars of Bitcoin and if we take it away it is just like beheading the beast. But in return we have volatility which is somehow hindering more merchants to adopt Bitcoin (though this can also be debatable) and become part of the mainstream.

The problem about volatility of bitcoin can be solved by having more users of bitcoin, now a days, bitcoin price goes up and down almost instantly and in great value because of the wealthy people who hoard bitcoin for a long time. But if there are many users who uses it for daily transactions then the price of bitcoin would be stabilized and will not greatly affect by the hoarders.

[Pursuer]

it is all about supply and demand it will always be about that everywhere.
what centralized things do, like what government do to control them is in fact controlling this supply and demand. for example if the price of something is going high too fast they issue that thing more (increase the supply) to manage the price better, and if it is falling they reduce the supply or place fake demand for it.

for example, where I live, a couple of years ago, local currency value started going down against dollar. in other words dollar price was going up very fast. the central bank started injecting some dollar into the market to manage this speed of rise a little and the prevented the huge price rise to some extent.

so you are correct about saying centralization can control the high volatility but at the same time a decentralize market doesn't have to be volatile just because it is decentralized. the supply and demand can grow too big and reach an equilibrium that prevents this kind of high volatility on its own.

[Kevin77]

The volatility of the bitcoin is not contrallable and it is not due to the decentralization, it is because the market of bitcoin is depending on the demand of the people who buy and sell bitcoin and that triggers volatility of bitcoin and that is not a good feature for bitcoin because we can earn some money by taking advantage of that.

Let's first consider the case with gold. Gold is also used for transactions but its prices don't change the way bitcoins one do. I agree with you that it is due to the supply a demand, prices change. But do you think this phenomenon does not apply on gold? The prices of bitcoins are controlled by whales. Simple!

[Hydrogen]

Part of bitcoin's volatility is due to it being a new invention, an emerging technology. It lacks the benefit of being tested through trial and error the way fiat or gold has been. Other inventions like the automobile or personal computer have faced similar trials and tribulations (volatility) in their early periods of history. Its inaccurate and unfair to compare bitcoin's volatility with older and more established technologies like paper money. A better comparison may be to compare bitcoin with marijuana legalization. They're both controversial, emerging, markets which are volatile due to them being relatively new.

Its normal for the stock market to experience volatility when news stories involving a certain stock or bond are published. Some centralized and regulated fiat currencies like the bolivar (venezuelan currency) are subject to extraordinarily higher degrees of volatility than bitcoin is. There are many historical examples of fiat currencies hyperinflating. Many world economies are experiencing upwards of 8% inflation per year. Its not hard to make a case for bitcoin having less volatility and inflation than many centralized, regulated, currencies issued by governments.