I established that bitcoin is well on the path to being the most stable currency in the world, an astounding claim, one that surprised even me.
Yet, when I break down the mechanism in which price stability is achieved, it makes sense.
Price stability happens at the exchanges. If you want to buy or sell a currency, and there’s millions of buyers or sellers on the other side of the market wanting to take your order, you will see a very small change in price movement from your trade.
When we look at fiat forex markets, the orders comprise of speculative trade, international trade and remittances. National trade within a currency never hits the forex exchanges.
But with bitcoin nearly all merchant and remittance activity worldwide hits the exchanges to convert to fiat, thus the potential for a much deeper order book. Another way to say this that with bitcoin, every cup of coffee you buy, anywhere in the world adds to market stability.
Its ceiling on stability should be orders of magnitude higher than fiat currencies.
The study concluded bitcoin would achieve fiat level volatility by mid-2019, which in my opinion is a level that will create a positive feedback loop that leads to more mainstream comfort with the currency.
This should open the way for bitcoin as a viable mainstream currency for the use of day to day commerce, further increasing its stability. A side conclusion was that payment startups such as BitPay are too early, and that their time will come in 2-3 years.
All of bitcoin’s competitors tote features that bitcoin is lacking – faster confirmation times and private payments. Both of these features will most likely be coming to bitcoin as layer two protocols in 2017.
If and when this happens, the battle for payments and general money will be fought solely on the playing field of economic network effects, that of liquidity and volatility.
Bitcoin remains the standout contender in this regard.
