Bitcoin proposed as a medium of exchange helping peer to peer payments by its creator Satoshi Nakamoto didn’t turn to be exactly what Nakamoto had planned for. Rather than a medium of exchange, the first cryptocurrency of the world became more of a store of value. While several flaws of bitcoin are prohibiting it to become a mainstream medium of exchange, volatility is the most problematic out of all.
The price of bitcoin depending entirely on the fundamentals of supply and demand has shown extreme volatile traits. As a change introduced in the supply and demand dynamics of bitcoin causes its price to rise and fall sharply, the price of bitcoin becomes very unpredictable. While the largest cryptocurrency of the world by market cap is experiencing its all-time high (ATH) at one moment, on another one, the price of bitcoin is falling down to the ground.
With such intrinsic qualities that can’t be treated or improved, bitcoin’s use as a medium of exchange can be forced. Although bitcoin scalability problem also prevents bitcoin from becoming a medium of exchange, solutions such as the Lightning Network, built on top layers of bitcoin, are capable of handling the scalability issues faced by bitcoin. However, similar or advance approaches can’t be beneficial to reduce bitcoin volatility.
As more volatility means more risk and more returns, people interested in speculation are attracted to bitcoin. Although more and more people are turning to bitcoin in the hope of massive returns, the mass adoption of bitcoin is making bitcoin less volatile than it used to be. If the adoption trend continues, one can expect bitcoin to become less volatile.
Like any other stock that becomes less volatile when its small market cap grows into a large or mega-market cap, data reveals that bitcoin has become less volatile with time passing by. The world’s truly decentralized cryptocurrency used to be more volatile in 2014 than it was in 2018. But since the beginning of 2019, bitcoin had been more volatile than 2018.
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Bitcoin had been captivating on its volatile nature to grab the focus of investors looking for heavy returns and gains. As bitcoin is becoming a more popular investment choice than other assets, its adoption is likely to rise over the years causing the volatility to decrease gradually.