NEW YORK (InsideBitcoins) — Although there are many different arguments bitcoin skeptics like to throw at bitcoin, the bulk of them fall into three broader categories: volatility, security, and convenience. These issues are still legitimate concerns for most of the general public at this time, but various developers in the bitcoin space have been making some slow and steady advances in these three key areas. The good news for the bitcoin community is that volatility seems to be on the decline and proper security measures are becoming much more practical for the general public.
Consumers seek volatility assistance
Price volatility seems to be the main concern among individuals who don’t see the point of using bitcoin on a regular basis. While bitcoin payment processors, such as Coinbase and BitPay, have removed the concern of volatility on the merchant side of things, consumers don’t yet feel comfortable about the idea of keeping a portion of their savings in bitcoin. However, there are a few indications that volatility as a whole will become a less-worrisome issue in 2015.
Bitcoin volatility is on the decline
First, let’s look at the numbers. Even with this morning’s 6% move, bitcoin volatility is not what it was in the past. The cryptocurrency recently enjoyed its longest run of sub-five percent volatility (as calculated by btcvol.info), and the “huge crash” seen earlier in the year was less volatile than an average day for bitcoin in the second half of 2011. It should also be noted that the last two major spikes in volatility over 10% were at least partially caused by the now defunct Mt. Gox exchange.
The first spike occurred when the incompetent exchange could not handle the large amount of trading volume during the April 2013 bubble, and the second spike occurred when the potentially fraudulent Willy bot was affecting the market, Mt. Gox went bankrupt, and regulatory rumors out of China were basically controlling the market. While Mt. Gox is now out of the picture and the public is better educated on the relationship between bitcoin exchanges and the actual bitcoin blockchain, regulatory uncertainty is still a serious issue.
Hedging could bootstrap bitcoin stability
In addition to the natural decline in volatility, there are also various tools coming to market that could enable users to hedge their bitcoins in a somewhat decentralized manner. Several platforms that allow users to bet on the price of any asset from the US dollar to Apple stock will allow individuals to hold bitcoin without having to worry about violent price swings nearly as much. Hedgy, Ultracoin, Truthcoin, and Orisi are all platforms that could allow users to hedge their bitcoins with exposure to fiat currencies, stocks, precious metals, or basically anything else via smart contracts. Whether or not it would be a good idea to create tradeable “bitUSD”, “bitgold”, or “bitEUR” out of these sorts of derivatives is still up for debate.
Although the Ultracoin client currently only allows users to take short and long positions on various assets for specific periods of time, Reggie Middleton recently confirmed that they are going to make those long and short smart contracts exchangeable in one form or another. In the near future, we could be looking at a situation where mainstream bitcoin wallets have the option to hedge bitcoins with fiat exposure at the click of a button.
@kyletorpey Yes, we are in the process of making the contracts themselves tradable, not just the value exposure of the contract's underling
— ReggieMiddleton (@ReggieMiddleton) January 5, 2015
You can follow @kyletorpey on Twitter.