Should Bitcoin Advocates Stop Apologizing for Volatility?

Bitcoin advocates have never portrayed Bitcoin as perfect, but in a bid to keep pushing for a wider acceptance of the cryptocurrency and more government backing, it’s understandable that they have been apologizing for its volatility, however, when you consider its numerous applications in just a short space of it being created, the number of hurdles it has had to surmount and how it still manages to return value compared to other monetary assets or stocks, then maybe its high time Bitcoin advocates stop apologizing for volatility.

Photo by Clifford Photography on Unsplash

Since it was made open-source in 2009, Bitcoin has had to overcome a lot of pushback and hurdles to achieve its considerably laudable success; the cryptocurrency is still placed on an ‘absolute ban’ in 9 countries — Algeria, Bolivia, Egypt, Iraq, Morocco, Nepal, Pakistan, Vietnam, UAE — and it has an ‘implicit ban’ in other 15 countries, it has received a lot of criticism from some traders, entrepreneurs or financial experts regarding its applicability, sustainability and most importantly its volatility, hence when bitcoin advocates constantly apologize regarding its volatility it is understandable, but the question is should Bitcoin advocates be really apologizing for its volatility especially when you consider it to other assets like Gold, Silver, stock market indexes such as NASDAQ, S&P 500, Dow Jones or Amazon, Microsoft, Alphabet & Facebook?

I don’t think so and this is why:

Upside Volatility

I don’t think it entirely justifies the volatility of Bitcoin, however, it remains a very notable fact that despite Bitcoin’s Volatility, majority of its Volatility has been on an upside; its logical to expect something that can improve up to 10 times, 100 times or even 1000times quickly, to witness a fall, but in reality, these falls have a low time preference, meaning although a trader or Bitcoin holder might lose 40times of his investment, he can barely complain since its mostly 40times of his 100times initial returns. Such level of upside or upward volatility cannot be ascribed to other modern financial trading markets because they barely experience such spikes to the upside are usually a rarity, with most spikes always mostly to the downsides (think shares In a public company), hence the stability of most markets and the gradual slow increase is usually accepted as a sort of norm and sign of a stock performing well.

With the news of PayPal joining Square in allowing its users to buy, swell and transfer the cryptocurrency, Bitcoin surged a massive 8% but technical analysts like Katie Stockton, believe that it might just be the beginning of something even juicier, with predictions of a 10% jump from the current levels (i.e post the 8% increase), this translates to a possibility of Bitcoin’s price being shored at $14,000. Once again, such massive leaps and forecasts highlight the intrinsical ability of the digital currency to be considerably more volatile on the upside when compared to other assets even Gold.

Zoom Out: Look at the Bigger Picture

Although Bitcoin has been widely adopted by speculators and traders, the fact is that the digital currency was created to be more than a tool for market speculators and traders but most importantly also that it would be suitable for everyday applications and transactions and one-day people can pay for retail goods using Bitcoin and also make cross border payments. Well, that dream is actually in motion; some major businesses are beginning to accept payments in Bitcoin, PayPal just allowed its users to make transactions in Bitcoin and emerging markets like Africa are also catching up with various platforms springing up to help citizens easily make transactions in Bitcoin.

It is necessary to understand and appreciate this long term goal and position of Bitcoin and to see it beyond a stock option or equity in a company in order truly appreciate its growth over the years. People, who see Bitcoin as a digital currency and share its long term possible value, are able to zoom out and actually look at the bigger picture of Bitcoin’s growth, and when you actually zoom out and look at Bitcoin’s growth over the years (about 10 years of just existing), you would see encouraging statistics like the fact that Bitcoin has been trading for around $10,000 for 3 years and that most people who believed early enough to invest in the cryptocurrency have all made considerable large amounts of returns over the years which is a sign that Bitcoin’s value is best appreciated when seen as a long term investment because, despite the volatility that critics point to, the digital currency has actually been steadily adding value.

However, a major argument against Bitcoin is that it claims to be a currency and not a stock option, hence, irrespective of the upwards volatility that might be pointed out, no currency or monetary asset should behave in such a volatile way and won’t people be worried if a fiat currency was behaving like Bitcoin with respect to volatility?

It is a very good argument when you consider my initial positions on looking at Bitcoin more as a currency still hoping to more accepted, but my initial position simultaneously addresses that by pointing out to the fact that cryptocurrency is still fighting for larger adoption (considering the currency is barely 10 years old and) and also there are so many factors that still control the volatility of Bitcoin like bad press, uncertainties or large currency holder risks. Besides, even if we decide to accept the fact that its currency or asset status should mean that it should mostly be compared to similar assets like Gold, its still clear that in relation to Gold, Bitcoin advocates have nothing to apologies when you consider the journey of Gold or its relative edge.

Should GOLD Really Be Compared to BITCOIN?

Gold and Bitcoin seem to be a more acceptable comparison for critics which is understandable considering their similarity; they share the same scarcity status because there can only be 21million bitcoins while there are estimated 180,000 tons of major commodity gold in the world, however, they seem to have enough differences to even suggest their comparison might be harsh; firstly, ‘Gold has been around since forever’ while Bitcoin is barely 10 years old, Gold also has close to nothing value as a medium of exchange or legal tender which cannot be said about Bitcoin as the cryptocurrency is increasing in adoption as a medium of exchange, hence Gold is barely subjected to the market dynamics that Bitcoin undergoes as a means of everyday transaction, also Gold has more government backing with some countries having gold in their federal reserve while Bitcoin advocates basically considers any form of Government approval as a major win, hence such government backing by the already gives gold a certain type of security in the eyes of majority.

Therefore, it might be understandable when Gold has less volatility compared to Bitcoin on the volatility index, however, when you consider the upside advantage of Bitcoin’s Volatility coupled with the fact that Gold has still struggled despite all the aforementioned advantages, then Bitcoin advocates would be excused if they stopped apologizing for its volatility; Gold never reclaimed its monetary status after the world war 1 and not until recently despite its long existence — a sign of its unreliability — did iconic Investor, warren Buffet, adopt Gold as an investment portfolio with the legendary investor once saying about gold that:

“Gold will never produce anything… it will remain lifeless forever” if it took even Gold that long to gather such support and acceptance, should we not give Bitcoin more time also?

Bitcoin advocates have never portrayed Bitcoin as perfect, but in a bid to keep pushing for a wider acceptance of the cryptocurrency and more government backing, it’s understandable that they have been apologizing for its volatility, however, when you consider its numerous applications in just a short space of being created, the number of hurdles it has had to surmount and how it still manages to return value compared to other money try assets or stocks, then maybe its high time Bitcoin advocates stop apologizing.


Should Bitcoin Advocates Stop Apologizing for Volatility? was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.