Bitcoin Getting Larger But Not Safer

In a previous article it was mentioned that with the recent excessive speculation in bitcoin, that bitcoin’s volatility since has been increasing after it went through a stretch of relative calmness. This aspect is important to review because in the past few years, bitcoin proponents have said that the volatility in bitcoin would decline as it got older and larger. With bitcoin only a few years old and worth about $10 billion, it was easy for a few investors to manipulate the price action causing it to sway rapidly without any fundamental catalyst.

Bitcoin is now 8 years old which is relatively young compared to the US dollar. It’s also still small relative to other currencies as it’s worth $137 billion. This means you wouldn’t expect calmness like the dollar. However, as it gets older and becomes worth more, you’d expect the volatility to rescind. The chart below shows that isn’t happening. As you can see, the volatility has ramped up in the past 12 months as the price has rallied. This doesn’t help the chances of it being considered a viable currency.

Volatility doesn’t sound like a big deal on the way up, but it’s a disaster on the way down. One of the ways bitcoin would be legitimized would be if Amazon began to accept it. Many claim that regulations would help it, but I think being accepted by Amazon would be more important because the ubiquity of the site would answer the question “what can you do with it?” easily. I recognize that there are end arounds to use bitcoin in more places such as buying a Gyft gift card, but Amazon accepting it would inspire confidence. I think Amazon would only consider accepting it if the volatility declined. Regulations could help, depending on what they were. The other reason for Amazon to start accepting it would be to juice sales growth. With the company gaining market share and dominating the cloud industry, there’s no reason to reach for growth now.