Bitcoin’s Proponents May Be Downplaying Concerns About Volatility

In a late January speech at a Hoover Institute policy seminar, Bank for International Settlements General Manager Agustín Carstens argued that Bitcoin, along with other cryptocurrencies, was more of a speculative asset than actual money. He stated that fluctuations in value make it unrealistic to set prices, less useful as a means of exchange, and a poor store of value. Further, Carstens claimed that its vulnerability to majority attacks would increase as it neared its maximum supply of 21 million coins.

“Above all,” he said, “investors must be cognizant that Bitcoin may well break down altogether. Scarcity and cryptography alone do not suffice to guarantee exchange.”

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Unsurprisingly, prominent cryptocurrency supporters jumped to refute these notions. Both Jameson Lopp, Chief Technical Officer at Bitcoin storage startup Casa and Nic Carter, Castle Island Ventures Partner pushed back hard on the claims, both touting the stability of the virtual currency and its ability to store value.

But have cryptocurrency speculators set aside concerns about volatility and stability in favor of short-term gains? In the past few months, the value of Bitcoin has surged, dipping from an early January high of $40,519.45 down to $30,534 before rocketing up to an all-time high of $48,684.49 in recent days, surpassing even Facebook ($FB) in market cap. The previous peak in January 2018 preceded a crash in value at the end of that year, leaving some speculators holding onto serious losses.

The volatility of cryptocurrency is well-researched, serving as the strongest point of criticism by some mainstream economists. That does not seem to have stopped recent and very public investments by major companies, including Tesla CEO Elon Musk’s recent announcement of a $1.6 billion purchase of bitcoin and plans to accept it as a payment method for its products. Musk has been well known for tweets boosting cryptocurrencies like bitcoin and dogecoin, with some sources suggesting they have been responsible for moving markets in both crypto and traditional stock.

With the value of cryptocurrencies being so unstable that it can see as much as 20% surge in value from a single tweet, it is no wonder that economists like Carstens are approaching it with a healthy amount of skepticism. While widespread speculation has made millionaires and paupers alike, it remains to be seen if crypto can stand up to traditionally government backed—and regulated—means of exchange.