Price volatility is still the Achilles heel of Bitcoin right now, but the bitcoin charts have been showing a movement towards stability over the past few years. While anyone could move the market with a few hundred dollars in the early days of the cryptocurrency, it now takes a hefty chunk of cash to move the digital asset in one direction or the other. Merchants and mainstream users are still frightened by the idea of entering a young, volatile currency market, which can’t really be called anything but practical. It’s no secret that the bitcoin price needs to become more stable if this new experiment in digital cash is going to takeover the world, but there are a few good reasons to believe that stability will eventually come the bitcoin’s way.
Regulatory Uncertainty Causes the Bitcoin Market to Panic
[dropcap size=small]T[/dropcap]he main culprit behind the bitcoin’s volatility right now is regulatory uncertainty. The largest swings in the market are almost exclusively due to statements or guidelines released by large governments. Although it’s difficult to pin down exactly what is moving the market on any given day, it’s clear that statements from regulators have had a huge impact on the market in its early days. The most obvious example of this phenomenon over the past few months has been the banning and unbanning of Bitcoin by China on multiple occasions. Once there are a clear set of guidelines created by the world’s most influential governments, we should see at sharp decline in the number of large moves made by the bitcoin in a single day.
New Applications Provide Increased Demand for Bitcoins
If any currency is eventually going to become stable, then it definitely needs to be widely used in a variety of applications. In the case of the bitcoin, real use cases are still hard to come by. It simply does not make sense for most people in the developed world to use Bitcoin right now. Having said that, there are many applications on the way that could turn this problem into a strength. Apps such as Bitcloud or Toroken could potentially be used to provide new use cases for people who wish to pay for cheaper cloud storage or faster anonymous Internet browsing. There are a myriad of new applications being built on top of blockchains right now, and the bitcoin will be the required currency of choice for everything from decentralized online betting exchanges to new methods of paying content creators for their work.
Unstable Economies Could Adopt Bitcoin Rather Quickly
While the developed world will be waiting for new applications to be built on top of Bitcoin, places like Argentina and Kenya could definitely use the first app of Bitcoin, currency. While people who use US dollars and euros enjoy relative stability with their currency on a day-to-day basis, places like Venezuela and Argentina are dealing with inflation that has been estimated in the triple digits. Currency crises are an unfortunate side effect of central banking in underdeveloped nations, and the bitcoin offers a new option when people in these countries decide they want to opt out of the inflationary monetary policies and economic restrictions imposed by their governments.
Trust and Stability Come with Time
While Bitcoin is extremely exciting to the people who trust it right now, the reality is that most people aren’t going to trust any form of digital money for quite some time. It took many years for people in the mainstream to trust Internet applications such as PayPal and eBay, and there are still some individuals who don’t trust the Internet when it comes to entering their credit card information or checking their bank statements. While new use cases for Bitcoin will come online with regularity over the next few years, there will be a large portion of the population who won’t trust Bitcoin as a payment option or currency until it has stood the test of time.
More Liquidity Means More Stability
At the end of the day, all of these factors lead to more stability for the bitcoin through added liquidity. As more people enter the bitcoin market with larger amounts of cash, a single trade on BitStamp or Coinbase will not have a large effect on the market price. If you look at the bitcoin charts from the past, you will notice that volatility has actually slowed down as the price has gone up. We will certainly still go through a few more booms and busts over the next two to three years, but the bitcoin price should eventually hit a plateau as those bull runs and crashes become smaller and less frequent over time.
Photo via Fabian Figueredo.
Last modified (UTC): June 4, 2014 2:47 PM