Bitcoin Volatility

[dnprock]

Original Post: https://bitflate.org/post/2020/05/10/bitcoin-volatility.html

Bitflate is a cryptocurrency with constant inflation of 7% per year. Its goal is to be a Medium of Exchange.

Bitcoin price is going up, but it will remain volatile

There is a common belief in the Bitcoin community about how Bitcoin would become a currency. The story says that Bitcoin is currently on its way to become a Store of Value. Once its market capitalization reaches a certain height, Bitcoin’s price would become stable. Then it will transition to a Medium of Exchange. I never buy this story. I think it’s very naive. Yet, many Bitcoin analysts believe in this story. Bitcoin’s limited supply is the cause of its price volatility. It’s an inherent property. Bitcoin may win the price appreciation. But we need to pay attention to its price volatility. This is where many bitcoiners are wrong. Two things are true about Bitcoin’s price:

• Its price is going up due to its limited supply.
• Its price is volatile due to its limited supply.

I came across a short video clip (https://twitter.com/johnkvallis/status/1257419107848290304) from Parker Lewis (@parkeralewis) and John Vallis (@johnkvallis). In the clip, Parker Lewis argues that inflation does not have any effect on price stability. The comment implies that Bitcoin would become stable without the need for inflation.

Deflation, inflation and volatility

I don’t think Bitcoin’s price volatility will go down. I started the Bitflate experiment to fix this problem. The purpose of this experiment is to prove that inflation has a price stabilizing effect. My point was proven during March 2020 when Bitcoin’s price crashed more than 50%. Bitcoin’s price volatility went up to a level not seen since 2014.

Bitflate is still a small experiment. It’s early to declare victory. But I think it’s heading in the right direction. John Vallis still disagrees with me about this topic. I’m sure many bitcoiners disagree with me.

John Vallis set a reminder in 5 years. If Bitcoin’s price volatility goes down by then, I will admit that I am wrong. The Bitflate experiment will fold. Until then, let’s enjoy the ride.

Bitflate is a cryptocurrency with constant inflation of 7% per year. Its goal is to be a Medium of Exchange.

[jossiel]

It's not naive. Bitcoin is already widespread as a medium of exchange. Just look to the whole trading industry of cryptocurrency. It's the most pair of all the altcoins and that's just another use of bitcoin being a medium of exchange.

You're correct about the volatility and supply limit of bitcoin. But that is also the reason why many of us believes that someday it will be as is, payment medium and a store of value due to scarcity.

[dnprock]

It's not naive. Bitcoin is already widespread as a medium of exchange. Just look to the whole trading industry of cryptocurrency. It's the most pair of all the altcoins and that's just another use of bitcoin being a medium of exchange.

You're correct about the volatility and supply limit of bitcoin. But that is also the reason why many of us believes that someday it will be as is, payment medium and a store of value due to scarcity.

When I transact, I always convert BTC to USD. I check how much the transactions cost in terms of real-world money. The question to ask is whether volatility will go away at some point. It's clear to me that the answer is No.

1 million: Too small. Explanation: Volatility will go away when we reach 1B.
1 billion: A little bigger but still small. Explanation: Volatility will go away when we reach 100B.
100 billion: We are here, volatility is still here. Explanation: Volatility will go away when we reach 1T.
1 trillion: Game changer?
10 trillion: Definitely big. Hope: volatility will go away (likely false).
100 trillion: World's money. Hope: volatility will go away (likely false).

Volatility is an inherent property of Bitcoin's supply design. It'll be here forever.

[jossiel]

It's not naive. Bitcoin is already widespread as a medium of exchange. Just look to the whole trading industry of cryptocurrency. It's the most pair of all the altcoins and that's just another use of bitcoin being a medium of exchange.

You're correct about the volatility and supply limit of bitcoin. But that is also the reason why many of us believe that someday it will be as is, payment medium and a store of value due to scarcity.

When I transact, I always convert BTC to USD. I check how much the transactions cost in terms of real-world money. The question to ask is whether volatility will go away at some point. It's clear to me that the answer is No.

1 million: Too small. Explanation: Volatility will go away when we reach 1B.
1 billion: A little bigger but still small. Explanation: Volatility will go away when we reach 100B.
100 billion: We are here, volatility is still here. Explanation: Volatility will go away when we reach 1T.
1 trillion: Game changer?
10 trillion: Definitely big. Hope: volatility will go away (likely false).
100 trillion: World's money. Hope: volatility will go away (likely false).

Volatility is an inherent property of Bitcoin's supply design. It'll be here forever.

I believe that the volatility will somehow be gone once bitcoin reached the peak and becomes stabilize when it becomes the world's most used alternative digital currency. You can conclude that it is inherent but we haven't seen those points.

It's debatable that you have the points as to why and how bitcoin can have that lesser volatility in time. And talking about the transaction fees, I don't think that paying $0.01 - $0.1 for a fee is too expensive and such a burden.

[dnprock]

I believe that the volatility will somehow be gone once bitcoin reached the peak and becomes stabilize when it becomes the world's most used alternative digital currency. You can conclude that it is inherent but we haven't seen those points.

Volatility will somehow go away once Bitcoin matures. It's difficult to guess how it would mature. I respect this view. I once believed in it. We can measure volatility. There's data to prove. We'll sync up in 5 years.

[ShowOff]

First, you have to move your thread to the right board and that is the bitcoin discussion.

Two things are true about Bitcoin’s price:

• Its price is going up due to its limited supply.
• Its price is volatile due to its limited supply.

While its true, you should know that bitcoin is a speculative asset where this speculation can cause market volatility. Speculative assets such as bitcoin are very unstable and are very dependent on supply and demand in exchange.

If this volatility is only caused by a limited supply, then bitcoin should continue to increase due to its scarcity. A better understanding in my opinion is that bitcoin is an asset that has a limited total supply and the price is set by the buyer and seller.

[Kasabus]

I believe that the volatility will somehow be gone once bitcoin reached the peak and becomes stabilize when it becomes the world's most used alternative digital currency. You can conclude that it is inherent but we haven't seen those points.

Volatility will somehow go away once Bitcoin matures. It's difficult to guess how it would mature. I respect this view. I once believed in it. We can measure volatility. There's data to prove. We'll sync up in 5 years.

I don't see any reasons that volatility will go away since it's the only feature of bitcoin that will always go along with it. Volatility will be here forever and it's never a negative point for bitcoin not to be able to be a medium of exchange in the future that will be of great value to all the users of it.

[vicoma]

Volatility is major thing that described the crypto market and will not end soon. Post halving might come with a lot of surprise as Bitcoin might continue to surge upward in price as against what major people expected.

[jossiel]

I believe that the volatility will somehow be gone once bitcoin reached the peak and becomes stabilize when it becomes the world's most used alternative digital currency. You can conclude that it is inherent but we haven't seen those points.

Volatility will somehow go away once Bitcoin matures. It's difficult to guess how it would mature. I respect this view. I once believed in it. We can measure volatility. There's data to prove. We'll sync up in 5 years.

Only time will tell when.

That's why we have to wait until that day comes. I respect your view too as it's interesting and informative.

Volatility is major thing that described the crypto market and will not end soon. Post halving might come with a lot of surprise as Bitcoin might continue to surge upward in price as against what major people expected.

It's the move that we're thinking for bitcoin. But, it wouldn't be a continuous surge because of some slopes that we could see must happen to make the economy balance.

[dnprock]

First, you have to move your thread to the right board and that is the bitcoin discussion.

The board does not allow altcoin discussion. I'm trying my luck with Altcoin Discussion. I've developed Bitflate, a crypto with constant inflation. The goal is to fix volatility. I could be wrong about Bitcoin Volatility. But if I'm right, I think Bitflate is the coin that the crypto market needs.

https://bitflate.org/

[Jawhead999]

Your title is wrong, it's why many people said this thread belong to Bitcoin discussion board. The right title about your topic is "Bitflate the constant inflation 7% / year will beat Bitcoin"
Let's see how long your coins will survive and will be valuable like you said above. Just for information, Bitcoin always dominating all cryptocurrency (around 1000 coin/token) even Bitcoin is on downtrend or major dump when June 2017 and Jan-Feb 2018. It's enough to say Bitcoin will always be King of Cryptocurrency.

[Ucy]

I think one of my favorite solutions to the volatility issue is to keep the volatility moderate via automation. One of the ways this can be done is by first of all increasing the cryptocurrency total supply alittle more... for example, you could create 3 million additional bitcoins (making the total supply 24 million) and securely lock them in multiple places within its decentralized system, then algorithmically increase supply when overall demand is high and decrease supply when overall supply is high... You program it to deflate more and inflate less. In the end, the algorithm keeps the coin moderately deflationary.   A cryptocurrency can still serve as a good medium of exchange with this method.  
*Changes to the rules that govern the algorithm would need to be done by the community in well decentralized  and transparent manner.

[dnprock]

I think one of my favorite solutions to the volatility issue is to keep the volatility moderate via automation. One of the ways this can be done is by first of all increasing the cryptocurrency total supply alittle more... for example, you could create 3 million additional bitcoins (making the total supply 24 million) and securely lock them in multiple places within its decentralized system, then algorithmically increase supply when overall demand is high and decrease supply when overall supply is high... You program it to deflate more and inflate less. In the end, the algorithm keeps the coin moderately deflationary.   A cryptocurrency can still serve as a good medium of exchange with this method.  
*Changes to the rules that govern the algorithm would need to be done by the community in well decentralized  and transparent manner.

There're two problems with such systems.

1. How does the system adjust rewards? One way is to ping exchanges for price volatility. Then how does the system choose the exchanges to include? The biggest 5, 10, or 20 by volume? Then x% of exchanges can collude and destroy other exchanges.

2. People can game the reward system. A dynamically adjusted reward system introduces a new variable. Mining can allow gaming because it's associated with real-world production costs. Your gaming is bounded by a physical reality. Gaming block rewards will result in financial manipulation. Let's say you own 10% of the coin supply, nobody comes close to your supply. You can start to manipulate the supply/demand to optimize your price. Your gaming is unbounded. Eventually you can control all supply, and therefore price.

I think a fixed rate would work better than those designs. It's not perfectly stable. But that's the tradeoff to maintain decentralization.