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Bitcoin is a revolutionary asset that defies traditional financial structures. Unlike companies, Bitcoin has no CEO, management team, earnings to hit, or competitors vying for its market share. It is a physical, bearer asset that can be held without counterparty risk, similar to gold, and it has no dilution risk. Bitcoin is the only asset with a predetermined supply distribution schedule and an immutable fixed total supply, making it truly unique in the financial domain.
So, why is Bitcoin's price so volatile if the asset itself is not changing? The answer lies in the old truism: Beauty lies in the eyes of its beholder. The fact that a large majority of the world's capital has yet to grasp the true value of Bitcoin. Some perceive it as worthless, while others believe it to be worth millions per coin. This vast disparity in perception and understanding is the root cause of Bitcoin's volatility.
The recent $11,000 drop in Bitcoin's price, which caused concern among some investors, is a mere blip when viewed in the context of Bitcoin's history. Just four years ago, in March 2020, Bitcoin traded for less than $8,000. This volatility is not a sign of instability but rather a reflection of Bitcoin's rapid global adoption over the past 15 years.
Interestingly, Bitcoin's volatility mirrors that of Amazon.com, one of the most successful public companies. Amazon's stock, which has been publicly traded for 26 years, has exhibited the same 80% volatility as Bitcoin. In every year of its 26-year history, Amazon has experienced double-digit drawdowns, with an average peak-to-trough decline of 31%.
This comparison (with the benefit of hindsight) highlights an important perspective: volatility is not inherently negative, and it is often a necessary component of growth and innovation. Just as Amazon's volatility did not deter its long-term success, Bitcoin's volatility should not be seen as a deterrent but rather as a natural byproduct of its rapid adoption and disruptive potential.
While the volatility of Bitcoin can be unsettling, it is crucial to remember that nothing can grow exponentially in a straight line. Bitcoin's price fluctuations are a reflection of its meteoric rise and the ongoing process of global adoption. As more individuals and institutions embrace Bitcoin as a superior form of money, its price is likely to continue its upward trajectory, albeit with periods of volatility and corrections along the way.
Bitcoin's volatility is not a sign of inherent instability but rather a testament to its rapid growth and the world's gradual recognition of its value. By understanding Bitcoin's unique nature and its journey, investors can gain a more informed perspective on its volatility and make more educated decisions regarding their exposure to this revolutionary asset.
(The author is Vice President of WazirX)
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(What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2024 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)
Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.
Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price