There is a lot of community talk about Bitcoin stabilizing “one day,” but what exactly can one do to make it happen?
Volatility is currently what keeps many investors away from Bitcoin, and the situation is unlikely to change on its own very soon, as no central regulatory authority can or will be able to control any of its parameters.
A new market
In an interview conducted by Equities.com, quantitative research analyst Nicholas Bhandari shed some light on how volatility may be eased through the emergence of a Bitcoin derivatives market, something that, for various reasons, has not yet been developed.
Bhandari confirms that “currently there is no way to profit off of Bitcoin’s volatility. You can buy an asset, but at this stage you have pretty much a 50/50 chance on whether it will go up or down.”
Due to the fact that all investors can do with Bitcoin at present is invest for the long-term, Bitcoin options allow the community to “create strategies that profit off of volatility whether it goes up or whether it goes down,” Bhandari said.
The capacity to support more profitmaking is something that no doubt would be welcomed in the community, but the difference lies in these profits going hand in hand with stabilization:
“On one side”, Bhandari says, “you have the option to protect against volatility so it’s not as crazy a thing anymore, where people aren’t as likely to buy and sell en masse. Two, people can profit on that volatility. It brings a stabilizing factor to the market.”
However, while Bhandari foresees that it “wouldn’t be that difficult to create a derivatives market around Bitcoin”, the reason that it has not yet occurred lies in the need for “a player with pretty deep pockets to set up that exchange”. And no such player has come forward specifically because of this very same volatility.
The answer, says Bhandari, may even lie in an alternative cryptocurrency being built together with a separate exchange for its options, from which stability would result:
“[Y]ou build a cryptocurrency with a separate exchange built at the same time to handle all derivative transactions on that cryptocurrency, so you build them up together.”
The community at large, however, may take rather more convincing. Skeptical forecasts of Bitcoin’s future are nothing new and hardly in short supply, Jeff Currie, head of Goldman’s commodities research unit for example, saying:
“With millennia of history behind it as a hedge against debasement, the key to gold’s success is the stability and predictability of its demand.”
“On the net, we find that Bitcoin is easier to store and transport and is potentially more difficult to counterfeit, but it is not nearly as ‘stable’ as gold and competitors still pose a greater risk.”