The Bitcoin monetary inflation rate decreased from 30~50% in 2011 to 4% this year, demonstrating the rapid mainstream adoption of the cryptocurrency in various markets.
Systematically and mathematically, the monetary inflation rate of Bitcoin is presumed to decrease at a fixed rate over time as the number of Bitcoins in circulation continue to rise at a fixed rate until it reaches its maximum capacity of 21 million Bitcoins.
Bitcoin as a deflationary currency
Financial experts define Bitcoin as a deflationary currency, due to its unique characteristic and cryptographic system which strictly controls the possible volume of the cryptocurrency in the market.
Since the birth of Bitcoin in early 2009, mainstream financial media outlets and experts heavily criticized Bitcoin’s volatility, stating that a highly fluctuating volatility rate of a currency could negatively affect its users in a wide range of aspects. Particularly, merchants and workers receiving Bitcoins as a part of their payroll could be affected by the fluctuating market value of Bitcoin.
Matthew O’Brien, a renowned American author and journalist for The Atlantic, described Bitcoin as a “tech stock,” claiming that its volatility rate doesn’t represent a legitimate currency.
“Bitcoin has a massive deflationary bias. Its money supply is mostly fixed, but the menu of things it can buy is growing. The same amount of money chasing more goods means money will be worth more. Or, put another way, prices will fall in Bitcoin terms. And that's why it's not a currency, and won't be one until it has a central bank.”
Volatility plays a large role in the development of Bitcoin
Three years later, the highly volatile market value of Bitcoin has become even steadier than established reserve currencies like the British pound. While many Bitcoin enthusiasts displayed their optimism towards the decreasing volatility rate of Bitcoin, volatility plays a large role in the development of a currency or any asset of value, contrary to what many would imagine.
The volatility rate of Bitcoin is directly attributable to the success and performance of the cryptocurrency. In 2010, 2011, 2012, 2013 and 2015, Bitcoin has continuously recorded high performances, becoming the world’s best performing currency for a few consecutive years.
Some stability in the price is necessary for Bitcoin
In 2010, it recorded 314% increase in its market value. In 2013, it reached an all-time high rate of 5992%, introducing Bitcoin to a wider range of mainstream users and investors.
The positive increase in the price of Bitcoin is still considered as a volatility rate. That means, although the price of Bitcoin was incredibly volatile in 2013 as its price increased by 5992%, the high volatility rate of Bitcoin turned out to be beneficial for Bitcoin businesses, users, and investors.
Without a doubt, having some stability in the price of Bitcoin is definitely necessary for Bitcoin to operate as one of the world’s major currencies. However, taking the volatility rate as an important aspect of the growth of Bitcoin is just as important.