OnDemand WTP Pricing Research

Bitcoin, The Dollar And Facebook’s Cryptocurrency: Price Volatility Versus Systemic Volatility | Forbes

Bitcoin’s price swung wildly this week, causing many to conclude bitcoin is unstable. But this conclusion misses a key nuance: Bitcoin was designed for systemic stability, not for price stability. Indeed, as a system Bitcoin is highly stable even though its price may not be. Bitcoin is the opposite of fiat currencies, which generally exhibit price-stability but are susceptible to periodic bouts of financial system instability. By extension, stablecoins that track fiat currencies, such as Facebook’s new cryptocurrency (Libra), fall into the same category as fiat currencies—they’re designed for price stability, not systemic stability, and are exposed to the same risk of periodic instability of traditional financial systems.

Can a monetary system be both price-stable and systemically-stable? Probably not, and here’s why.

The real world isn’t stable. Unpredictable events happen. Consequently, demand for money is inherently unstable too, influenced by factors such as earthquakes, droughts, hurricanes, technology break-throughs, the sudden discovery of large oil/mineral reserves, tax/tariff/regulatory changes, population trends and even simple seasonality. To cajole price stability within fiat currency systems, central bankers counteract these demand fluctuations by intervening in markets—in an attempt to steer the economy to perform within a target rate of price inflation, a currency peg or interest rates.

Read complete article here:

Bitcoin, The Dollar And Facebook’s Cryptocurrency: Price Volatility Versus Systemic Volatility.

Post a Comment

WP-SpamFree by Pole Position Marketing