Photo by Mario Gogh on Unsplash

The very nature of bitcoin’s volatility comes from the fact that its supply is finite, and doesn’t bend to changes in demand.

It is hard-wired to grow at a rate that is already established.

Let’s make some comparisons between commodities and fiat money to make the point clearer:

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Commodities

If you were to compare bitcoin to any commodity of your choice, you would find that any increase in demand will have its producer make tons of whatever they’re making, moderating the price of the commodity going up — in order to increase profits.

At the opposite end, a decrease in demand will make a producer decrease the supply of the commodity, thereby minimizing its losses as much as possible.

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Fiat Money

Just like producers of commodities, central banks across the world are expected to maintain a relatively stable purchasing power of their currencies.

In order to maintain this stability, the banks use monetary policy to counter whatever fluctuations are happening in the market.

Now, look at bitcoin and understand that it has an unbreakable supply schedule that never bends to neither high or low demand. Also, understand that there’s no central bank managing the bitcoin supply neither.

With an inflexible supply and no centralized management, you’ll likely experience volatility. This happens especially in the very early stages where demand can behave very crazy.

Now, compare bitcoin to an early-stage startup.

You have changes in strategy, team, pivots, you name it. It’s erratic. It’s still an infant. But as the market grows, so does the sophistication of institutional and retail users of bitcoin. This will make bitcoin’s volatility decrease over time.

The key for this to happen is for a larger number of users to hold bitcoin for the long term, as they indeed have (see image below).

The cumulative sum in dormant Bitcoin addresses is an indicator of how much bitcoin is being stored/held (bitinfocharts.com)

In order to raise the market value of an inflexible supply/decentralized asset, you need to do that with a fraction of the supply. That’s why bitcoin being divisible to 100,000,000 satoshis and the “stack sats” meme is so important.

It’s both an important movement and use case in order to achieve stability.

Conclusion

2020 will be the decade where bitcoin’s price will slowly stop behaving like a startup going through fast growth. This is achieved through continuous growth and user adoption.

And if the growth should stop, don’t worry! Only manipulative, high-risk investments would stop getting attracted to bitcoin in that particular scenario.

That would make bitcoin a monetary asset like any other, appreciating steadily year over year.