Bitcoin, Volatility and the Search for a Stable Cryptocurrency

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That the bitcoin price is highly volatile is no secret. Opinions differ on whether that is just an inevitable roadblock to be passed on the way to world domination or whether it represents a fundamental flaw that will prevent Bitcoin from ever achieving widespread use as a medium-of-exchange. Seasoned hedge fund trader and monetary systems expert Robert Sams, is of the latter view and has been among the leaders in conceptualizing what a stable cryptocurrency should look like. It’s an issue that is at the very heart of how the cryptocurrency ecosystem will develop.

Topics covered included:
– Why volatility is an obstacle to cryptocurrency adoption
– The two big problems of creating a stable cryptocurrency
– His proposal for a stable cryptocurrency: Seignorage Shares
– How finance professionals perceive Bitcoin

Links mentioned in this episode:

– Seignorage Shares Whitepaper: https://github.com/rmsams/stablecoins/
– Robert Sams Blog: http://cryptonomics.org/
– Ethereum Blog Search for a Stable Cryptocurrency: https://blog.ethereum.org/2014/11/11/search-stable-cryptocurrency/
– XeroClear Twitter: https://twitter.com/xeroclear

Sponsors:

– Shapeshift: https://shapeshift.io

Show notes: http://epicenterbitcoin.com/podcast/060
SoundCloud: http://soundcloud.com/epicenterbitcoin/eb-060

Epicenter Bitcoin is hosted by Brian Fabian Crain & Sébastien Couture.

– Visit our website: http://epicenterbitcoin.com
– Subscribe to our newsletter: http://epicenterbitcoin.com/newsletter
– Twitter: http://twitter.com/epicenterbtc

13 COMMENTS

  1. Here is how your managed money supply gets fucked. I look at a chart, and buy your coins at a point when the supply is high… Then I hold your coins until the price goes down to what looks like a "low" and I sell them. Then I wait until the price goes back down and I buy more of them than I did the last time, and wait for them to go back up in value, then I sell them hard. Before you know it, I have a dominant position in your coin, and I dump it at a particularly slow period and destroy the value of whatever coins you are holding….. #Deadshitcoin……

  2. Did you guys even Nakamoto White Paper? I am guessing NO…. Mostly because you seem to mistake crypto for a worthless piece of paper. READ IT! If you read it once, READ IT AGAIN! Volatility isn't a FLAW. Volatility is a reflection of "MARKET ACTION"… I know. It looks scary, but that is what capitalism looks like when it isn't managed by a global cabal of central bankers. I mean really. If "you" want to transact in curated, regulated, and hyper-taxed currency systems, stick to fiat. If you want to transact as close to (if not entirely) exclusively between yourself and the party you are doing business with, let go of Mommy's hand, and step forward into the light of self-determination.

    Also, it should be noted that the "volatility" of the "exchange rate" is not solely a reflection of supply, demand, and speculation on the Bitcoin/crypto side. Because we are talking about an "exchange rate" and not a "price" (prices are possible when you are talking about exchange between to fixed quantities/values, exchange rates are transient and floating because the volumes/values on both sides of the exchange are liquid, and not entirely known) we must consider the action of the Federal Reserve. If the Federal Reserve cuts QE, that strengthens the FRN, the FRN becomes a better store of value, demand for Bitcoin goes down, and it takes less FRNs to buy more Bitcoin. The Fed restarts QE, new FRNs are created at a rate of $180 BILLION a month, production of new FRNs vastly out-paces new BTC, Bitcoin becomes a better store of value than the FRN, it takes more FRNs to buy LESS BITCOIN!!! So yeah, there is your fing "volatility"……

  3. Is Robert a Keynesian economist? We don't need a monetary policy, or changes in money supplies. The market provides its own solutions. 
    Post war Germany boomed because there was no government interference and there are plenty of historical instances of anarchistic economies booming before being co opted by governments.
    Monetary policy is polishing a ponzi turd. 

  4. Regarding bitcoins volatility, I dont see this as a long term issue. The volatility is a function of bitcoins very low market cap.
    Adoption needs to drive through this volatile phase to a point where a satoshi will be a weeks wages. 
    If bitcoin were worth 1% of world gdp it would take a lot of buying and selling to move it significantly.
    Volatility is a 2 way street depending on what is the dominant force.
    If bitcoin is the dominant player then the volatility will be measured in dollars or anything else compared to a stable bitcoin.

  5. With Bitcoin it's easier to implement stable supply than stable price because issuance is a one-sided transaction.

    I don't really think Robert explained why a stable price is better than a stable supply – or stable demand for that matter.

    If the money supply is manipulated to achieve stability, all this means is people cannot determine value directly from price. They must derive it from demand! In the case of Bitcoin, there is value information present in the price. If you had a crypto which equitably (uniformly) redistributed a changing supply (somehow), then people would need to derive value information by introducing a synthetic concept like "purchasing power" or "real value". Note how Brian trips over the words for this.

    When you have a fixed supply, the price reflects "real value" directly.

    Assuming money is not given to certain people before others (which is a real problem Bitcoin was designed to solve), manipulating monetary supply dynamically is merely a shell game. All you do is obscure true changes in demand by shadowing them with corresponding changes in supply. Why bother? It's 2015, most products are dynamically re-priced constantly because of the changes in demand and supply of the underlying goods (and speculation). 

    Studying economics, we're told price is a function of supply and demand, but it's no less true to say that supply is a function of price and demand and that demand is a function of price and supply. The three abstract quantities belong to one continuous-feedback model. Their meanings are derived mutually from each other. Dynamically changing supply to stabilise price may enable people to anticipate the numeric quantity of a transaction, but they won't know the value of it until they "adjust for inflation".

    The price may have become stable, but not the "real price".

  6. Episode 60: Robert Sams on Bitcoin's Volatility and the Search for a Stable Cryptocurrency 

    Is Bitcoin's volatility a flaw that will prevent Bitcoin from ever achieving widespread use as a medium-of-exchange? Monetary systems expert Robert Sams has written a white paper conceptualizing what a stable cryptocurrency should look like.

  7. You might also like to check out NuBits/NuShares. Pegged 1:1 to USD and deep liquidity on a number of exchanges.
    The decentralised NuNet also allows adding other pegged currencies e.g. to a basket of goods or currencies in the future.

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