Bitcoin Is Volatile, But...

A common complaint of Bitcoin from outsiders is that it is too volatile. Indeed, in terms of dollars and other fiat currencies, the exchange rate can fluctuate wildly. This sometimes means massive upswings in a matter of days, and at other times major drawdowns.

Understandably, this can concern people who view Bitcoin as a mere investment.

Besides the fact that Bitcoin is not simply “an investment,” but rather a new form of money pre-programmed to appreciate in value as adoption grows, another important fact is missing.

If you’ve spent much time studying Bitcoin, you’ve probably heard “Bitcoin isn’t volatile, people are.” And this is true. A mix of speculative traders, varying degrees of risk tolerance amongst adopters, and many other variables are what make Bitcoin seem to trade erratically compared to fiat currencies.

But explaining why exactly Bitcoin isn’t volatile is important, lest our little adage sound like a pithy cliché to outsiders. Here is how I would frame Bitcoin as anything but volatile:

1. Bitcoin operates like clockwork. Approximately every 10 minutes, regardless of what is going on in the world, a new block filled with (typically) a few thousand transactions is mined and added to an immutable ledger.
2. When that block is found by a miner, they are compensated with a foreknown reward. We call this the block subsidy, and today that subsidy is 3.125 bitcoin.
3. Every 210,000 blocks (or approximately every four years), that subsidy is cut in half (called a “halving”). So, up until a few months ago, the reward was 6.25 BTC per block mined and in a little under four years it will be 1.5625 BTC. Miners enter the space knowing this full well.
4. Each block that is found is then appended to a fully transparent ledger, viewable by anyone and validated, on average, every 10 minutes by tens of thousands of nodes running the Bitcoin software.
5. At the end of many more halvings, sometime around the year of 2140, the subsidy will disappear and no more bitcoin will be created - ever. This rule enforces the “21 million hard cap,” meaning no more than 21 million bitcoin will ever exist.

Bitcoin is anything but volatile. Everything I’ve just laid out exists in open source code; there is no guessing what Bitcoin is going to do today, tomorrow, or in the distant future. It’s core rules are set in stone.

And yet its fiat-denominated price fluctuates wildly. If it isn’t “Bitcoin being volatile,” what other explanation could there be except that the people using or speculating on Bitcoin are volatile?

The bad news is, we are still so early and most people don’t understand this. The good news is that we are still so early, and as more and more people come to appreciate the predictable nature of Bitcoin and its incredible monetary properties, more people will adopt it as a form of savings.

And with greater adoption comes lower perceived volatility. And with lower perceived volatility comes greater adoption. It’s a reinforcing cycle that only leads to one conclusion:

Bitcoin will continue to go up forever.

‍