Anyone who bought bitcoins some years ago keep saying that current bitcoin's price swings doesn’t matter, because of the potential of the blockchain technology behind the currency, or the fact that in 5 years from now, the price will be at least $10,000 because of the limited supply or more users buying it or institutional investors who will drive the price up. Let’s face it. It hurts when your bitcoin holdings are worth 5 times less than in November 2013. But let’s not forget that in the past 6 years, bitcoin has performed great as an investment and very bad as a currency because of volatility. Bitcoin's widespread adoption as a currency and price stabilization are challenging goals that cannot be achieved immediately. Bitcoin's volatility is a problem but in the same time is also a solution in getting bitcoin(as a currency) mainstream. Volatility is a good thing because it draws speculators, traders, hedgers and a lot of people who are looking to profit from price swings into the market.

In 1970s, banks found great opportunities to build foreign exchange trading desks because after the collapse of Bretton Woods system, exchange rates wildly fluctuated and trading activity was very profitable. Exchange rates became relatively stable because of the development of sophisticated trading tools and the liquidity of the markets which attracted traders. Liquidity attracts liquidity.

In any financial market, traders have a huge impact, because they buy and sell assets in a short period of time to profit from price moves in any direction. This activity provides liquidity to markets, which means that people who want to sell an asset will quickly find buyers and buyers of a certain asset will quickly find sellers.

The same thing is happening in digital currencies market right now: As more and more people are involved in selling and buying these new type of assets, there are more buyers and more sellers, the holy liquidity is increasing and the price is becoming more stable. It's important to emphasize that traders are getting into bitcoin markets because of volatility and not because price gains, simply because price volatility means bigger profits. For example, If prices are going up or down 10-15% daily, traders can make more money on being on one side or another of the trade. They just need robust, professional, secure and transparent trading platforms and services.

The connection between volatility and trading volumes is well established in financial markets and is beginning to emerge in digital currencies markets too. Volatility will finally create the payment network and monetary base that bitcoin needs and people will start to trust bitcoin as an effective, efficient, cheap and fast way to send money around the world almost instantly, 24/7.

I predict that bitcoin as a currency will be stable as euro or dollar in less than 10 years.

Stelian Balta