Hoover Daily Report

The Meaning Of Bitcoin’s Volatility

via Wall Street Journal
Wednesday, March 7, 2018
Image credit: 
Alexander Kirch, Shutterstock

Bitcoin, despite its name, isn’t money. Its price volatility significantly diminishes its usefulness as a reliable unit of account or an effective means of payment. Bitcoin might, however, serve as a sustainable store of value, like gold. Even if you’re not buying cryptoassets, bitcoin’s boom-and-bust cycle is worth watching. It may foretell of heightened market volatility to come and significant imbalances across a broad swath of financial assets.

The underlying technology, blockchain, is a significant breakthrough. Bitcoin’s computer code was unveiled on Jan. 3, 2009, by the pseudonymous Satoshi Nakamoto. It deftly allows participants, who may not know or trust one another, to complete transactions without having to rely on any centralized governance regime. Most of us can’t read the code, but in bitcoin’s “genesis block” its creator inserted a curious bit of text, a headline from a U.K. newspaper that day: “Chancellor on brink of second bailout for banks.” Bitcoin’s founding spirit is evident, too, in what its founder wrote shortly thereafter: “The root problem with conventional currency is all the trust that’s required to make it work.”

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