Image by Marco Verch / CC BY 2.0 / Cropped
Bitcoin and other cryptocurrencies are often cited as some of the most volatile assets, and with good reason. Few assets can claim to have experienced a rise as sharp as that of 2017, a bearish run as severe as that of 2018, and as stellar of a rebound as the crypto market has seen in the last three months.
Throughout 2018, bitcoin’s bear run was cited as proof that the cryptocurrency can’t hold on to the five-figure levels seen in late 2017, and many critics called it a correction to bitcoin’s “true” value. In the meantime, however, a great amount of infrastructure had been built around the crypto space, along with the entry of institutional investors into the mix. This provided cryptocurrencies with plenty of support to bounce back from dips and hold above resistance levels.
After 41 days of gains, bitcoin experienced its first major pullback since April, as prices went from nearly $14,000 a few days ago to the current level of just above $10,000. While there were positive takeaways from this move back, many still saw it as a concerning showcase of bitcoin’s unparalleled volatility.
Yet Bitcoinist’s Emilio Janus makes the case for why investors should embrace bitcoin’s volatile patterns as opposed to shying away from them. Janus cites Stanford Law student Conner Brown, who recently argued that BTC’s volatility is part of what makes it such an attractive asset. As Brown noted, volatility makes headlines, which ultimately spreads word about a new asset class to a broader group of people. Volatility also weeds out reluctant buyers and allows value investors to load up on the token as speculators run away.
Both of these phenomena play directly into Bitcoin’s absolute scarcity, which dictates that only a specific amount of tokens can ever exist in circulation. This fundamental feature of Bitcoin was designed to facilitate a transition from a store of value to an actual currency. While some feel that a true currency can’t be as volatile, Brown notes that BTC is far more apt to act as a reserve currency than the U.S. dollar. As opposed to the free-floating greenback and other fiat currencies which are infamously prone to liquidity injections, Bitcoin’s fundamental scarcity will warrant far greater stability once the market has matured some more.
With all of these factors taken into account, the bottom line of why Bitcoin’s volatility may ultimately be a net positive becomes clear. While the volatility will likely cause other dramatic pullbacks in the future, it will also allow long-term investors to capitalize on explosive instances of price gains, such as the near-quadrupling of Bitcoin’s price over the past few months. This will become even more prominent as Bitcoin’s scarcity becomes a prevalent topic of conversation. And one must not forget that, a mere three years ago, BTC was trading at just $600 a unit.
What do you think are the pros and cons of BTC price volatility? Let us know in the comments section below.
