Bitcoin: Will Volatility Last Forever Or Not?

A debate has started these days about it the future of Bitcoinand especially its characteristic volatility.

Bitcoin: doubts about volatility

So far over the years the price of Bitcoin has been particularly volatile.

Disregarding the early years, i.e. those before the first halving in late 2012, the annual excursion between peaks and troughs has been decidedly high.

For for example, in 2013 it fluctuated between $13 and $1100while in the following three years it fluctuated between approx $170 and $1000.

In 2017, it fluctuated between $750 and $20,000and for the following three years it moved in an area between $3,200 and $29,000.

Since 2021 bull run, but things seem to have changed, because the oscillation has been between $29,000 and $69,000which is much lower than in the previous two years where a post-halving bull run occurred (2013 and 2017).

For this reason, there are those who argue that, in the long term, Bitcoin’s price volatility is actually bound to inevitably decrease, while others argue that it will remain high. There is also the intermediate hypothesis where it will decrease while remaining significant.

Those who argue that it will remain high do so because they consider volatility an inherent feature of Bitcoin’s price, since the creation of new BTC is totally inelastic for the market. But the difference between volatility that is as high as it has been in the past and volatility that is only significant but not resounding is remarkable.

For example, Francesco Simoncelli points out that over time the volatility of gold-backed coins has also gone from high to moderate.

Ancora sul dibattito Rochard/Weiner su #Bitcoin.
Rochard has affermato ingenuamente che la volatilità su #BTC will remain. Questo non è corretto, perché mano che gli speculatori verano sostituiti da imprenditori, essa si attenuerà come già accaduto all’oro in passato. pic.twitter.com/8ILdko3UWg

— Francesco Simoncelli (@Freedonia85) 17 August 2022

Bitcoin is often compared to gold, and is used as a form of protection against arbitrary inflation of the money supply of electricity fiat currencies, a bit like gold itself. So if the inflation rates of gold-based currencies were also once very high, but over the decades have faded a lot, then perhaps the same can be true for Bitcoin as well. Moreover, it seems that this dynamic is already in place from 2021.

If indeed Bitcoin was destined to partially replace gold in the financial markets, for example as a form of protection against the ultra-expansive monetary policy of central banks, then the dynamics that have seen gold coin inflation fall dramatically over time could be repeated on the price of Bitcoin as well, thereby reducing the volatility of medium and long term.

However, it is worth noting BTCits success in the financial markets is precisely and primarily due to its volatility, which makes it a very attractive asset for speculative purposes. But in the future speculators may be replaced by long-term investors, or entrepreneurs, and this may provide Bitcoin a new and different role in the financial markets.

For this reason, the intermediate hypothesis, namely that volatility will decrease but not go to zero, should not be neglected at all.