Bitflate is a cryptocurrency with constant inflation of 7% per year. Its goal is to be a Medium of Exchange.

Bitcoin price is going up, but it will remain volatile

There is a common belief in the Bitcoin community about how Bitcoin would become a currency. The story says that Bitcoin is currently on its way to become a Store of Value. Once its market capitalization reaches a certain height, Bitcoin’s price would become stable. Then it will transition to a Medium of Exchange. I never buy this story. I think it’s very naive. Yet, many Bitcoin analysts believe in this story. Bitcoin’s limited supply is the cause of its price volatility. It’s an inherent property. Bitcoin may win the price appreciation. But we need to pay attention to its price volatility. This is where many bitcoiners are wrong. Two things are true about Bitcoin’s price:

  1. Its price is going up due to its limited supply.
  2. Its price is volatile due to its limited supply.

I came across a short video clip from Parker Lewis (@parkeralewis) and John Vallis (@johnkvallis). In the clip, Parker Lewis argues that inflation does not have any effect on price stability.

John Vallis & Parker Lewis tweet

The comment implies that Bitcoin would become stable without the need for inflation.

The (false) hope that Bitcoin price would become stable

When I transact, I always convert BTC to USD. I check how much the transactions cost in terms of real-world money. The question to ask is whether volatility will go away at some point. It’s clear to me that the answer is No.

  • 1 million: Too small. Explanation: Volatility will go away when we reach 1B.
  • 1 billion: A little bigger but still small. Explanation: Volatility will go away when we reach 100B.
  • 100 billion: We are here, volatility is still here. Explanation: Volatility will go away when we reach 1T.
  • 1 trillion: Game changer?
  • 10 trillion: Definitely big. Hope: volatility will go away (likely false).
  • 100 trillion: World’s money. Hope: volatility will go away (likely false).

Bitcoiners like to talk about price. But when it comes to volatility, they’d avoid it by giving vague answers and false hopes. Volatility is an inherent property of Bitcoin’s supply design. It’ll be here forever.

Deflation, inflation and volatility

I don’t think Bitcoin’s price volatility will go down. I started the Bitflate experiment to fix this problem. The purpose of this experiment is to prove that inflation has a price stabilizing effect. My point was proven during March 2020 when Bitcoin’s price crashed more than 50%. Bitcoin’s price volatility went up to a level not seen since 2014. Source

BitcoinVolatility-05-2020

Bitflate is still a small experiment. It’s early to declare victory. But I think it’s heading in the right direction. John Vallis still disagrees with me about this topic. I’m sure many bitcoiners disagree with me.

JohnVallis5Year

John Vallis set a reminder in 5 years. If Bitcoin’s price volatility goes down by then, I will admit that I am wrong. The Bitflate experiment will fold. Until then, let’s enjoy the ride.

Bitflate is a cryptocurrency with constant inflation of 7% per year. Its goal is to be a Medium of Exchange.