Is Bitcoin Volatile? It was, so yes, but not so much recently, probably not in the future. Well is it? Or isn’t it? Perhaps it can be understood in the context of a love story.
Bitcoin is a new asset class. Exceptional returns – 123% in 2016, the first digital currency to be a store of wealth, system of instant exchange and the ultimate hedge against Geo-political crisis. It’s like meeting the love of your life… They’re just too good to be true.
So you’re skeptical. After all, you’ve just come out of a long marriage to the share market and look how that ended – thanks GFC. It’s not like you’re going to jump into a new relationship willy nilly. After all, what do you really know about cryptocurrencies?
It’s a bit volatile at first. All that Bail-in business happened in Cyprus 2013 – Bitcoin went up. But then Mt Gox, a major Bitcoin exchange got hacked. Down went Bitcoin.
Like your first fight with your new love: it was too good to be true! You knew it – you run. The storm passes – it was just a misunderstanding and you’ve actually learned something about each other. Exchanges are just for exchanging – they’re not for storing Bitcoin. A cold storage device like a Trezor or Ledger is the go. Now you know.
2014 – up goes Bitcoin again. Oh o; China announces warnings and restrictions around trading. Fear and panic set in, people start selling, down goes Bitcoin. Your new love starts offering advice on you, your mates, your lifestyle. Wait a minute! We don’t have the same way of doing things!! You defend, they attack, boom. Break up.
The Chinese stock market crashes in 2015 and good old Bitcoin surges. It doesn’t matter what the Chinese government say; Bitcoin is an independent, distributed system. It can’t be controlled by a third-party authority – it doesn’t behave like a fiat currency. The differences are what fuels its massive growth. Your partner gets it; you’re not the same – you complement each other with diverse opinions. How can you grow as an individual if you’re dating a carbon copy?
Over time Bitcoin volatility decreases. Your relationship chills too; you don’t react so strongly now you’ve gotten to know each other. Ironically, all these ups and downs haven’t broken the bond; on the contrary. You’ve established trust off the back of volatility; whatever challenges you face, you want to work through, because you believe in a future.
Here’s how the relationship looks charted:
Pretty volatile in the beginning – you’re not sure if it’s going to work out, but when you realise it is actually as good as it looks, you trust it and it grows.
By the way – this is the Bitcoin Market Price chart from January 2013 to May 2017.
Yes, Bitcoin was highly volatile – and still is somewhat. With a market cap of only $US29 billion a few major trades ripple like a rock in a pond. Compared to Gold, with a $US6.3 trillion market cap, big moves don’t even cause a splash.
Ultimately, the world has fallen in love with Bitcoin – we’re all investing in the future of the relationship: the total Cryptocurrency market is growing at $US1 billion per day. Bitcoin alone added $US3 billion in market cap in the last four days.
Pursuing something new, that feels too good to be true, is scary. What if it doesn’t work out? But what if you’re missing out on an amazing future? Risk or regret? Perhaps the real question is – how good can you stand it?
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