volatility, can it really be overcome?

[JohnBlack]

Every cryptocurrency has an intrinsic volatility at this moment as every chart out there clearly shows.

As you all know this can affect their widespread adoption in online retail in a negative way (it's a bit hard to pay suppliers next month if your income halved in value yesterday imho), my question is, what solution can there be?

State currencies remain stable thanks to a regulated environment, do you think there is any other solution, different from a state regulated context, to this pivotal problem?

I don't believe that any currency will just go on and "stabilize itself" as long as speculators and traders exist..

are crypto destined to be commodities?

[Snowfire]

The jury is still out on where it all goes; but for now, in every cryptocoin system to date, speculators have vastly outnumbered those who would actually use the instrument as a currency in the long run. Too many look upon cryptocoins merely as platforms for get-rich-quick schemes, and these holders are quite content to turn cryptocurrencies into digital tulips. In theory, volatility should decrease over a long time, but that may be a very long time, and in the meantime, legitimate adopters (who are the very ones who would stabilize the system) are inhibited from entering. A next-generation cryptocurrency might contain code that would respond to bubble conditions by flooding the system with extra units and to crashes by withdrawing units as needed; but no such thing has been created to date. More user-friendly software that the average person can comfortably and conveniently use would help, too. Some progress on that front is being made, but it is still slow.

[d'aniel]

A couple good recent articles on the volatility subject:

http://garzikrants.blogspot.ca/2013/11/solution-to-bitcoin-volatility.html
http://www.washingtonpost.com/blogs/the-switch/wp/2013/12/09/heres-why-volatility-isnt-a-big-problem-for-bitcoin/

[titulng]

why don't try?

[black_swan]

A couple good recent articles on the volatility subject:

http://garzikrants.blogspot.ca/2013/11/solution-to-bitcoin-volatility.html
http://www.washingtonpost.com/blogs/the-switch/wp/2013/12/09/heres-why-volatility-isnt-a-big-problem-for-bitcoin/

I can't open the washingtonpost link but I had a look at Jeff Garzik's article and it's very good.
The idea of creating a currency which reacts to bubbles is interesting but at the same time it cannot be used with PoW hence bitcoin.
I don't understand this "volatility issue" with bitcoin, merchants can use services like bitpay to attract more buyer and cash out to FIAT instantly.

[guybrushthreepwood]

Every cryptocurrency has an intrinsic volatility at this moment as every chart out there clearly shows.

As you all know this can affect their widespread adoption in online retail in a negative way (it's a bit hard to pay suppliers next month if your income halved in value yesterday imho), my question is, what solution can there be?

State currencies remain stable thanks to a regulated environment, do you think there is any other solution, different from a state regulated context, to this pivotal problem?

I don't believe that any currency will just go on and "stabilize itself" as long as speculators and traders exist..

are crypto destined to be commodities?

Volatility is natural with new currencies. Hopefully it'll stabilise in the future, but it's still early days for Bitcoin.

[BTCisthefuture]

It's hard for people to say with certain that bitcoin won't continue to be heavy speculative.  But the general assumption seems to be as the market grows it becomes harder and harder for people to manipulate it and things stabilize.

There's already some solutions/options for merchants who accept bitcoin that reduce the risk of volatility and that area continues to improve. So I'm not too worried about that.

[bryant.coleman]

If we get more institutional investors, then I think the Bitcoin exchange rates will stabilize. Short selling is causing the volatility. Need to clamp down on it. 

[coinrevo]

Maybe, but not for now. The volatility comes from uncertainty. A much bigger problem are possible statistical third moments (volatility is 2nd derivative of price), i.e. tails, which are not even in the historic data set. It can't be ruled out that bitcoin drops by say 90% in a day.

In the end low volatility would mean that the price increase is limited. There are theoretically possibilities of pegging, but I don't think there is any progress in this direction.

[mistress_magpie]

What Holliday said.

My view is that the more bitcoin is current in the ordinary economy - buying things such as tomatoes and land - the less volatile it shall become.

[Cryptolator]

I think it will get more stable when it will be more widespread. We are a really small percentage of the global population that have bitcoins. When more people will have some, I do believe that the price will stabilize. Can't be sure tho, it's just my thought.

[Nagle]

Bitcoin needs to be a lot more stable to be used for goods transactions. An absolute minimum is that the price shouldn't change significantly (< 0.5%)  during the minutes it takes to confirm a transaction. Otherwise, even selling incoming Bitcoins as fast as possible, a merchant takes an unacceptably large exchange risk.

Before items (other than no-cost-to-make or huge-markup items) can be priced in Bitcoins, the volatility needs to be low enough that the same price can be used for an entire day. That means volatility under 0.5%/day.

More speculators won't help.

[skivrmt]

Bitcoin needs to be a lot more stable to be used for goods transactions. An absolute minimum is that the price shouldn't change significantly (< 0.5%)  during the minutes it takes to confirm a transaction. Otherwise, even selling incoming Bitcoins as fast as possible, a merchant takes an unacceptably large exchange risk.

Before items (other than no-cost-to-make or huge-markup items) can be priced in Bitcoins, the volatility needs to be low enough that the same price can be used for an entire day. That means volatility under 0.5%/day.

More speculators won't help.

Not sure it'll ever be below .5% simple because of the limited amount of coin available.  And I don't just mean the total coin of 12.5MM, I mean the actually float, or what is freely being traded out there in the marketplace on various exchanges around the world. 

I think eventually someone will create a working futures type of market so businesses can hedge against price fluctuations.  Think oil prices for airlines as an example.  Southwest had amazing earnings a few years back when oil went to $150 a barrel simple because they hedged better than the rest of the airlines.

[Nagle]

Not sure it'll ever be below .5% simple because of the limited amount of coin available.  And I don't just mean the total coin of 12.5MM, I mean the actually float, or what is freely being traded out there in the marketplace on various exchanges around the world. 

I think eventually someone will create a working futures type of market so businesses can hedge against price fluctuations.  Think oil prices for airlines as an example.  Southwest had amazing earnings a few years back when oil went to $150 a barrel simple because they hedged better than the rest of the airlines.

Hedging has costs. You pay a commission and a spread. If you have to hedge just to cover single-day volatility, the cost will exceed that of credit card processing.

For Bitcoin to make a dent in retail sales or remittances, the same-day volatility has to come way down. There have been about 14 days in the last 60 when the BTC/USD price changed by more than $100 in a day. Bitcoin is stuck as a pure speculation as long as that continues.

[Skaterdiejosh]

Maybe this will be a problem untill all bitcoin has been mined.. Seems like the value will continue upwards trend till this happens. Ofcourse there will be major down times but in the long run it will allways recover. Bitcoin might allways be vary volatile and only used as a investment, savings and transfer of assets.  Just because it might not be used to buy your lunch or buy gas for your car wont mean the end of bitcoin. It's also hard to predict what would happen if every company and online website accepted bitcoin as payment this would change everything and maybe cause the volatility to be lots less....

[kkaspar]

High volatility and unpredictability, are the outcomes of unregulated markets, of an currency, that is very attractive to speculation.

[Nagle]

Maybe this will be a problem untill all bitcoin has been mined..

More than half way there already. If that was going to induce stability, it would have happened by now.

[Peter R]

Disruptive technology (especially when the technology is money itself) is going to be volatile until it reaches it's saturation point in the world's population.

The volatility is a sure sign that it hasn't reached that point yet.

It can be overcome with time.

+1

[Lethn]

I should point out that in markets like ours volatility will always happen, while things will settle down you're still going to have price spikes and so on but that's just because that's what a real free market is like, people will always buy low and sell high because it benefits them, if you always bought and sold high you'd be constantly making a loss. That said as the currency spreads out and people use it more and more for buying stuff which is getting easier now things should settle down.

A prime example of something extremely manipulated are paper currencies and the long term/short term government bonds, the only reason they are at the prices they are is because someone in a central bank is pressing a button and buying them up when they think the price is too low or selling when they think it's too high.

[skivrmt]

I should point out that in markets like ours volatility will always happen, while things will settle down you're still going to have price spikes and so on but that's just because that's what a real free market is like, people will always buy low and sell high because it benefits them, if you always bought and sold high you'd be constantly making a loss. That said as the currency spreads out and people use it more and more for buying stuff which is getting easier now things should settle down.

A prime example of something extremely manipulated are paper currencies and the long term/short term government bonds, the only reason they are at the prices they are is because someone in a central bank is pressing a button and buying them up when they think the price is too low or selling when they think it's too high.

Regular paper currency doesn't have much volatility.  But while some of it may be due to a central bank buying and selling, they don't do enough to control the daily prices.  The main reason is market cap.  Look at the market cap of the USD, Euro, etc vs. XBT?  Look at a large cap stock like GE, JNJ, versus something "new" like Telsa?  Shares outstanding and market cap.

So little out there, it's such a speculative investment at this point, which means huge price swings..  Also one of the reasons many people like it...no chance for real inflation.