After this lesson you can: explain why volatility is expected and what has happened to it.
The strongest version
A money should be stable. Bitcoin moves 5% in a day and 70% in a year. Nobody can price a coffee in it.
Why it is volatile
- It is small. Against global money and assets worth hundreds of trillions, bitcoin is a rounding error, so modest flows move it.
- Its supply cannot respond. When demand rises for gold, miners dig more; when it rises for bitcoin, only the price moves.
- Adoption comes in waves, and markets overshoot in both directions.
- It has no central bank smoothing it, which is the point.
What the data shows
Measured over years, bitcoin's volatility has declined as the market has grown, with each cycle's drawdown shallower than the last so far. Stability is not a property you can design in; it is an outcome of size and maturity.
The honest version
Bitcoin is not yet a stable unit of account, and it may not be for a long time. For now it is a savings technology first and a payment rail second (Lightning handles payments without needing the price to be stable). Anyone who needs their money next month should not hold it in something that can fall by half. That is not an argument against the technology; it is advice about time horizons.
Annualised volatility was around 110% in bitcoin's early years and around 50% in recent cycles. By roughly what percentage has it fallen?