Let Fidelity take the wheel and drive you through the fantastic world of volatility. Bitcoin critics wield among the property’s primary attributes as an unsolvable failure, however, is it? According to Fidelity, “bitcoin is fundamentally volatile.” That doesn’t discourage it from satisfying “its ultimate investment objective of preserving wealth over long time periods.”
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The business stated all of that in Fidelity ‘s latest edition of “The Research Round-Up.” In their much longer analysis, they use oil and gold as examples to explain the whole volatility process. We’re in the summing up company, however. Here at NewsBTC, we will distill their post, state the bottom lines, and briefly discuss them.
Fidelity Explains Bitcoin’s Fixed Supply
“Bitcoin is unique in that it is a good whose supply is completely inelastic to changes in price. In other words, supply does not (and cannot) change in response to price.”
There will just ever be 21 million bitcoin which’s that. With other products, there’s a cycle. “Going back to economic principles, we know that when demand increases for a good, in the short-term the price will rise. However, the higher price then incentivizes suppliers to produce more. More supply will then bring down the price.” This doesn’t occur in bitcoin.
“With bitcoin, supply cannot change regardless of what price does. Therefore, any change in demand, short-term as well as long-term, will have to be reflected by changes in price.”
It’s just sensible. The laws of supply and need can just impact the rate, therefore they do. “There is no change in supply to dampen the effect of price moves, even over the longer-term.” Mix that with an ever-decreasing supply of brand-new coins, due to the halvings, and you have an ideal dish for what bitcoiners call “number go up technology.”
Fidelity sums up the phenomenon with a quote from Parker Lewis:
“Bitcoin is valuable because it has a fixed supply and it is also volatile for the same reason.”
Those 2 attributes been available in the very same plan.
BTC rate chart for 03/09/2022 on FX | Source: BTC/USD on TradingView.com
Bitcoin As A Store Of Value
“Something that has low volatility is not necessarily a good store of value in the long run, while something that has high volatility does not mean that it can’t be a good store of value in the long run.”
It’s simple to get frightened by volatility. Investors, traders, and even real followers let their sensation obstruct and exit the marketplace with every little bump in the roadway. However, there’s nobody that has actually holded bitcoin for more than 4 years and remains in the red. Literally nobody.
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Let’s get an apparent example from Fidelity, “The U.S. dollar is not volatile but has also not been a good store of value in terms of purchasing power, while bitcoin is considered very volatile, but has been a much better store of value over the past ten and even five years.”
“Volatility is a byproduct of price discovery, and there is no other way for price discovery to happen in a free market.”
Even though bitcoin is 13 years of ages, it’s still going through a rate discovery procedure. How much is bitcoin truly worth? We won’t understand for several years, even years. “This process of individuals all coming to adopt bitcoin in different ways and timeframes necessarily must produce volatility,” finishes Fidelity.
Fidelity Thinks Bitcoin’s Volatility Is Decreasing
“The limited historical evidence we do have so far appears to be showing volatility declining over the long-term.”
Bitcoin Volatility reducing | Source: Fidelity
The chart plainly reveals that volatility is gradually fading. This is just sensible. Fidelity describes, “as gold went through a major price discovery process in the 70’s, which then resulted in amassing a larger base of investors, volatility naturally declined.” We’re still early, though. This is not monetary guidance, however, in the meantime, you ought to discover how to ride volatility and utilize it in your favor.
Featured Image by Chris de Tempe on Unsplash | Charts by TradingView and Fidelity