Bitcoin (BTC)–Despite the crypto markets otherwise experiencing a decline over the last several weeks, that saw the total market capitalization dip below $200 billion for the first time in nearly a year, Bitcoin is experiencing a 14-month low in terms of price volatility. Granted, the value of BTC has dropped from over $8000 at the start of the month, to fluctuating in the $6200 – $6500 range for the past several days. However, investors can take some solace in the fact that Bitcoin’s volatility appears to be consolidating–either in preparation for another significant price movement, or a signal that the market is finally evening out.
BTC Price Volatility a Barrier to Entry
Economists across the globe, ranging from Nobel Prize winning academics to more fintech focused money-managers have found a renaissance in weighing in over why Bitcoin is destined to fail. Time and again, the issue of price volatility emerges as a significant threat for the currency’s mainstream adoption in addition to its ability to sustain as a day to day form of payment. Lowering price volatility, at least in the short term while the market recovers from an already eight-month-long bear market (which has seen most altcoins fall to 95 percent of their last all-time high value). Price volatility is antithetical to currency usage, particularly when that volatility leads to a spiraling of downward value. Economists have pointed out the nonsense in providing loans with a currency that fluctuates rapidly throughout the week, to say nothing of the headache involved in lending out a deflationary currency (obtaining a $200k mortage in Bitcoin today could be a $800k mortgage in Bitcoin a year from now).
The dampening of price volatility, even without an accompanying increase or appearance of coming increase is a win for investors, but particularly those invested in cryptocurrency for the long-term. Price volatility has been the primary deterrent to mainstream adoption, and has led to the rise of numerous “payment protocols” and “merchant solutions” in lieu of businesses directly accepting crypto for payment.
However, who can blame these merchants?
Imagine the typical small business owner or online outlet that wishes to expose themselves to the growing customership of cryptocurrency–or even just believes in the currency and wants to participate in the flowing market of crypto. The anxiety involved in managing a bottom line with a currency that posts regular 10-20 percent price swings in a week is too consuming for your average merchant, let alone big Wall Street player. Declining price volatility will be the first key to greater adoption of Bitcoin as a source of payment and not just a vehicle for price speculation.
Cryptocurrency exchanges have done well in terms of providing frequent and ubiquitous outlets for accessing cryptocurrency, in addition to giving media outlets a litmus test for the movement of the market. However, they have also had a narrowing effect on industry outlook, turning the average cryptocurrency participant into a myopic price speculator that can’t see past the 24-hour price change. Judging the health of an emerging market, let alone a new class of technology and money based off day-to-day price swings is a recipe for disaster. As the co-founder of Ethereum put it last week, the price of crypto may be in decline, but adoption and the overall future outlook for the industry is as strong as ever.