Ask old-school investors to share their thoughts on crypto as an investment, and you’re likely to be met with at least a bit of skepticism. More often than not, they’ll name crypto volatility as one of the main reasons for their hesitation.
It’s understandable. Anyone who even remotely pays attention to the news has likely been exposed to stories about crypto’s “wild” ups and downs, probably even more than they’re aware of how fiat currencies like the U.S. dollar or British pound are performing.
The problem is that those stories are missing vitally important points, not only about the way crypto works but also about how the blockchain technology behind it is poised to change the foundations of our financial system.
The Overlooked Positives — Yes, Positives! — of Crypto Volatility
Let’s start with the biggest reason why we see crypto volatility in the first place.
Unlike stores of value like cash, crypto is based on a 100% transparent transaction system — the blockchain. That means there can be no “back-room deals” where untraceable bundles of paper money change hands.
With crypto, because everything happens on the blockchain, everyone…and we do mean everyone…can see that transaction within just a few minutes of it occurring.
Because of that transparency, though, crypto markets are extremely sensitive to market signals and fluctuations. And this means the value of crypto investments may sometimes move more often, and more dramatically, than many other investments.
Is the Tradeoff Worth it?
Is this transparency worth the price we pay in crypto volatility? Well, consider the enormous pain relying on the old system has caused.
Banks haven’t exactly been the standard bearers of inclusion and honesty. We don’t even have to go back that far for a great example of what can happen when we put all our faith in the banking system.
Blockchain technology started to emerge for the first time in 2007…right around the time we were beginning to suffer from the effects of massive financial mismanagement by banks worldwide — mismanagement that would go on to cause one of the worst financial crises in memory.
Bitcoin was created as a direct response to that centralized mismanagement. Because Bitcoin is fully decentralized, no one institution can control or manipulate it.
Why We Should Welcome (Even Celebrate) Crypto’s Volatility
You can even argue that we’re asking the wrong question. Going back again to the latest financial crisis, we didn’t see daily volatility in investments like housing…until the entire system came crumbling down almost overnight, a victim of secretive market manipulation and wild speculation by bad actors.
Wouldn’t we have welcomed daily price volatility if those transactions had occurred in the open over a blockchain, rather than by banks behind closed doors? Perhaps it would have allowed us to spot the ignorance the financial system was built on much sooner.
Fact of the matter is that crypto’s volatility tells us that the system is working as it should. Because…
Within Crypto’s Volatility is the Secret to its Long-Term Success
At its heart, crypto’s short-term volatility reflects its long-term strength. Crypto is still a very young industry. If we think of it as being in its “start-up” phase, the difference between crypto and other highly regarded start-ups is twofold — its transparency and its liquidity.
We rarely see anyone with the ability to trade on the value of young industries as easily as they can with crypto. And that can, and almost necessarily will, lead to volatility and fluctuations. But as it becomes more mature, and more widely adopted, we should expect to see stabilization and steady growth.
Now just imagine having an entire country’s monetary system built on the same blockchain technology, or a similar, decentralized yet fully transparent technology that allows us to hold everyone accountable.
From taxpayers to government officials, even a country's financial spending can be viewed on the blockchain. Even contracts for future payment can be mandated to be on the blockchain, creating a more interwoven, and more accountable, legal, and financial system.
We even suspect the securities listed on many global exchanges will eventually become tokenized and listed on the same exchanges right alongside Bitcoin and other cryptocurrencies.
Bottom line…crypto is here to stay. And as it matures, we expect to see that level off, making a crypto investment as stable, if not more so, as so-called “mature” investment vehicles.
Manage the Impact of Crypto Volatility with a Dedicated Team of Bitcoin Experts
Gumbo is a cryptocurrency hedge fund dedicated to increasing investor Bitcoin holdings, paying dividends monthly, and only profiting when their investors do. All investments are managed 24/7 by crypto experts. To learn more about Gumbo and investing in Bitcoin, contact our team.