Tea Leaf Reading: What the Future Holds for Bitcoin Volatility

Dec 18, 2014
Bitcoin Volatility

Bitcoin Volatility

Today, we’re going to be indulging in some market prediction.  I know some of you flinch a little at reading that, but bear with me: we’re interested in the price of Bitcoin only incidentally.  What we’re really interested in lays a derivative up—the volatility, e.g. the up and down variation of the market.

The volatility, not the price, is what really determines the usefulness of Bitcoin in the real world.  There are ways to manage volatility, but lower volatility means more Bitcoin usage, more convenient access to your Bitcoin, and other properties that will make Bitcoin gambling easier and the Bitcoin casino market more convenient and rewarding.

If you spend any time in the Bitcoin scene, you pretty quickly get used to the creative use of graphs.  People will make colored graphs, logarithmic graphs, graphs with rainbows drawn on them, fit insultingly-highly-ordered polynomials to them, and generally put statistics through all sort of degrading abuses to get the results they want — namely, an optimistic result.

Bitcoin VolatilityPeople who are long on Bitcoin will do and say practically anything to get you to invest, and that goes double for the more obscure altcoins, and the results often border on outright numerology.  Most ‘Bitcoin market prediction’ that you can easily find are nothing but this sort of schlock, and should be taken with many grains of salt.

Here’s the honest truth: the story told by the Bitcoin graph is one of a tremendous boom of interest, followed by a slow, inexorable decline as the early speculation proves to have been premature.  Bitcoin price doesn’t correlate closely with commercial demand. The price has continued to fall in the face of rapidly increasing commercial use.

This means that the bulk of Bitcoin commerce is driven by non-commercial factors, namely amateur speculation.  That speculation is unlikely to ever rise back to the $1200+ levels of late 2013 because public awareness is saturated, and the steady stream of good news since then has done little to buoy the market.  What we have left is a general trend towards lower prices.

On the upside, though, that trend has also been towards one of stability. As we move out from that enormous peak, there are more and longer periods of stability, including the one we’re currently in, with the price fluctuating within about $50 of the $400 mark.  Each precipitous drop drives speculators from the market (and the speculators that remain are less nervous and more invested in the long haul).  That means more market stability.

In another drop or two, we’ll begin to approach the point where the value of the commodity is truly stable in terms of commerce, making the digital currency a reliable store of value for workers, merchants, and even free Bitcoin casino players.  That stability, when it comes, will provide a solid foundation to the growing Bitcoin economy, and a powerful force for economic freedom.

Until then, those of you who want to gamble with Bitcoin can enjoy the relative stability of the current moment, and brush up on ways to protect themselves from volatility.