Bitcoin’s Volatility Reflects a Work in Progress — BitBeat

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Bitcoin Latest Price: $411.42, up 0.7% (via CoinDesk)

Crossing Our Desk:

Bitcoin has gone from a bear market to a bull market to a bear market again – this week.

Bitcoin’s price spent much of this year treading water, trading between $200 and $250. Since the start of this week, it’s gone parabolic again. It jumped from around $318 on Monday to $492 on Wednesday afternoon – a 54% surge. It fell back under $400 this morning, a drop of about 20%. It’s back over $400 in the afternoon.

Those aren’t normal moves, but of course, bitcoin isn’t a normal market. Having just celebrated its seventh birthday (Satoshi Nakamoto released his white paper on Oct. 31, 2008), bitcoin has grown from obscurity to notoriety to something resembling normalcy. But bitcoin is still more experiment than platform, and that is even truer for all the so-called bitcoin 2.0 projects floating around. Trying to figure out if bitcoin can move from experiment to mainstream, trying to figure out what bitcoin is going to be when it grows up, makes valuing it tricky.

To be sure, the bitcoin 2.0 hype is driving a good part of this latest speculative boom. From American Express to WestPac, big banks are taking this technology seriously, and putting money and manpower behind it. Over the next 24 months, the top 100 financial companies around the world will invest $1 billion in blockchain-related projects, according to a report from MA advisory firm Magister Advisors (the same report got a lot of press by predicting that bitcoin would be the world’s sixth largest reserve currency by 2030).

Can they recreate the wheel, so to speak? To the bitcoin stalwarts, all this attention on blockchain misses the point. “The focus should be on the creation of an independent bitcoin capital market separated from the control of banks,” said First Global Credit CEO Gavin Smith. “After the facilities are in place for a bitcoin capital market, let the banking industry join the free trade network that has been established.”

Can that kind of a market be established if bitcoin trades like a bucking bronco? To the extent that the renewed volatility reminds people of the 2013 Wild West days, it could hinder wider adoption. There’s a reason why Wall Street resisted “bitcoin,” but has been very open to “blockchain.” To the extent that it makes using the currency harder because you can’t be sure the fiat value of your bitcoin holdings or what you’re going to get back in a transaction, it hurts adoption.

It hasn’t been so bad for some investors, though, not this week. The price of Bitcoin Investment Trust ‘s ETF was trading around $30 from May to late October, virtually immobile. It’s up about 50% since the end of October, even if it is down 11% on Thursday.

Indeed, if you’re a pure trader, the volatility is great. Bitcoin as a trading platform is a free-marketer’s dream: there are no opening or closing bells, there are multiple exchanges that open up arbitrage plays, there are options and derivatives to aid betting for or against the currency. There are no circuit breakers. In China, where much of the trading is speculative to begin with, the volatility only fuels more trading.

Like so much with bitcoin, whether the volatility is good or bad comes down to what you want bitcoin to be, and that is a question that is still being answered, and may not be answered for many years. That is what makes determining bitcoin’s “fundamental” value so hard.

Email:; Twitter: @paulvigna

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