I made a chart of the volatility of Bitcoin, and how it changes through time:
Apologies for the poor chart quality; I'm more interested in the discussion than in making good-looking charts.
I don't know what is usually used as measure of volatility, but I took the ratio between the highest and the lowest price in a certain time period. I plotted the logarithm of this to make some of the smaller details better visible. I plotted the volatility for 1 day, 7 days and 30 days, based on the daily MtGox USD/BTC price from bitcoincharts.com.
As a general guide to the vertical scale:
1 means: high = 10 * low (so about 900% price change in the given time period)
0.2 means: high = 1.6 * low (so about 60% price change in the given time period)
0.1 means: high = 1.26 * low (so about 25% price change in the given time period)
Question:
For Bitcoin to become useful as a currency, isn't the volatility supposed to become lower, when adoption increases? I think we've seen lots of increase in adoption, but this chart shows little reduction in volatility. Please note that typical volatility levels are REALLY HIGH: we still have a long way to go when it comes to reducing volatility.
What is needed to reduce volatility? Should Bitcoin become "boring" so that we won't have a massive influx of new money in short time spans? Should there be more merchant acceptance? Should there be more "calm, rational" speculators who buy near the bottoms and sell near the tops?