The big headline earlier this week was the pound sterling falling to an all-time low following announcements by new prime minister Lizz Truss that a series of tax cuts would be introduced. Investors feared this would hurt confidence in the pound, and the sale sent the value to an all-time low of $1.03. The headlines were full of talk about the Armageddon-like movement, the future of the pound, and what that meant going forward. One thing that impressed me – it shows how far we still have to go for Bitcoin to be considered a solid form of money. As can be seen in the chart below, the pound is down close to 7% to $1.03 before returning to where it now trades at $1.07.
GBP/USD Chart by TradingView
Bitcoin
On the other hand, if we look at Bitcoin’s daily returns, that 7% drop only represents a Sunday afternoon. I plotted Bitcoin’s daily returns over the past year to illustrate this below. In fact, there have been 23 occasions in the past year alone when Bitcoin has had a daily movement of a magnitude of 7% or more (11 down, 12 up). Of course, for a currency or store of value, this is totally unacceptable – which is precisely why Bitcoin cannot be considered either, at least for now. And that still has a long way to go. I am on record as a staunch believer in the power that Bitcoin holds, but it is simply absurd to declare it a respectable store of value now. The pandemonium surrounding the 7% drop in GBP shows this better than anything. A 7% barely makes headlines in cryptocurrencies. I saw Bitcoin limits firsthand when I went to El Salvador this summer. Citizens have reported feeling uncomfortable with volatility, and many have set up their native Chivo app to immediately convert any Bitcoin received through their trades into dollars, so they don’t have to endure volatility. One stat should be all you need to understand how far Bitcoin needs to go: the world’s largest cryptocurrency is down 70% from its all-time high less than a year ago (November 2021). Imagine being 100% allocated to Bitcoin and referring to it as a store of value? It’s just objectively wrong.
Is Bitcoin Becoming Less Volatile?
I have charted below all daily movements in Bitcoin in percentage terms since 2014. The results do not point to a significant reduction in volatility. However, it was only in the last couple of years – the COVID era – that Bitcoin really became popular. Prior to that, it was largely a niche asset operating in esoteric corners of the Internet. So it could be that the next two years are the most significant in terms of a drop in volatility. One thing is for sure, volatility right now on GBP is causing chaos, and it shows exactly how far Bitcoin still needs to go to achieve its goal of becoming a respectable store of value.
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