This poses a problem for the use of Bitcoin as a means of payment
Which buyer would like to spend bitcoins today on the assumption that the purchasing power will be 20% higher tomorrow?
Which trader would like to accept the bitcoins today if the value could be reduced by 40% tomorrow?
There are currently two requests for Bitcoins that are responsible for the price increase:
Demand for a speculative object (currently the main price driver!) And the
Demand for BTC as a means of payment.
Let’s take a look at the factors influencing exchange rate volatility at a high flight level.
Supply and Demand and Trading Blog
It is obvious. Bitcoins are limited to 21 million pieces. Only 12 million were put into circulation, some of which have already been lost forever (private key lost, e.g. due to hard drive crash; Interesting side question: What will the FBI do with the 144,000 confiscated Bitcoins? These are now worth> 90 million EUR and are located here ). The demand for the scarce commodity BTC is increasing and with it the price.
The market is not “deep”
Although the BTC market capitalization is around USD 10 billion (12 million BTC at a price of USD 850 / BTC), the percentage of BTC shown for trading is only a small fraction of that. For a sedentary fund manager, a market cap of $ 10 billion is a joke. A high-volume buy order eats its way through the outstanding offers and drives the price up immensely. Conversely, high-volume sell orders cause the price to drop sharply. Bitcoin behaves like a “penny share” here. Volatility is typical when market participants place orders in the millions, but the underlying market liquidity is comparatively low. After the US Senate dealt with digital currencies this week and, alongside Fed Chairman Ben Bernanke, acknowledged this technology, the next few months will be very exciting. Little by little, institutional “big money” from mutual funds and companies will pour into the market and market capitalization will increase.
Bitcoins are at young stage.
It took decades from the conception of a single currency for the euro area to the physical roll-out of the new currency at the beginning of this millennium. Banking software, point-of-sale systems (PoS) and the cash in our wallets have been replaced. This mammoth venture was supported by billions of dollars in taxpayers’ money and covered by corresponding laws. Learn more about Binance Guides
BTCs do not have these “advantages” and are not supported by legislature or taxpayers’ money. The governments are sitting in the stands and a revolution is taking place at the grassroots level, driven by enthusiasts, programmers, entrepreneurs, etc.
Designing a digital currency on a blank sheet of paper is a unique undertaking, mentioned on Trading Blog. It will take months for financial products such as futures, options and shorting to contribute market information and thus reduce volatility.
It will take months for PoS systems to accept bitcoins. Until then, the use of BTC in the “real world” – that is, in shops – will only progress slowly. Buyers can already pay with smartphones and, for example, some Subway franchisees are already accepting Bitcoins via tablet app. But there is still a long way to go from paying for sandwiches to real estate or the like. After all, since yesterday you can pay for a flight into space with Bitcoins at Virgin Galactic.
A lot of brainpower is being worked on on technical and legal solutions for the use of BTC as a means of payment, because the demand for this is obvious. And whoever develops the “killer application” can take away a huge piece of the cake from Visa, Mastercard, PayPal, Western Union and the like … or even the whole cake!
Set the right goal
Nobody knows how long it will take to roll out such a groundbreaking concept in its diverse areas of application. Is a global currency, a “globo”, unfolding before our eyes?
BTC acts like a startup company and its “share price” fluctuates accordingly. A project with high risk, high exchange rate fluctuations, huge potential and yet with an uncertain outcome. Perhaps the project will collapse in a big, loud bang and with it the course will fall to 0.
Or could it be one of the projects that hit like a bomb and have become an integral part of our lives: Search via Google? Shopping via Amazon? Social network via Facebook? Transferring assets via bitcoins?
It is currently far too early to make a serious statement about the outcome of this experiment.
So how does the volatility decrease?
Growth of the Bitcoin ecosystem (starting with file sharing exchanges to get BTC at all, via wallet providers, via financial products based on the BTC protocol to the PoS for traders, etc.) and above all:
BTC is the underlying protocol for the immediate and (almost) free transfer of assets. Wealth becomes “programmable”. There will be financial applications that we dare not dream of today. The use of BTC as a means of payment and asset storage will increase every day, and not just as an object of speculation.
As the technology adapts and market capitalization increases, the exchange rate becomes more stable. But until then we have a very rough and extremely entertaining roller coaster ride ahead of us!