Does Bitcoin’s Volatility Mean It’s Risky? Not Really.

Bitcoin’s recent price action has been nothing short of a spectacle, setting multiple all-time highs over the past few weeks while simultaneously experiencing sharp downturns. But volatility is not the same as risk.

Daily swings of 5% or more have become commonplace, creating a rollercoaster effect that feels exhilarating to seasoned bitcoiners but unnerving to the traditional investors who are now entering the market in greater numbers. For those accustomed to the slow, steady pace of conventional assets, bitcoin’s volatility is a source of anxiety. But what do these wild fluctuations actually signify?

When most people hear the term "volatility," they instinctively equate it with danger. An asset that experiences sharp price swings must be risky, right? Not exactly. While volatility measures the frequency and magnitude of price changes, risk is an entirely different concept: the probability of a permanent loss of value or erosion of an asset’s purchasing power over time.

This distinction is crucial, especially when considering assets like bitcoin. Its rapid price fluctuations often lead to knee-jerk assessments of it as “too risky.” But is bitcoin truly risky in the long term, or is its volatility simply misunderstood in the context of its unique monetary properties and role as an emerging asset class?

The Hidden Risks of Fiat Stability

To truly understand risk, consider the U.S. Dollar. On the surface, the dollar appears stable. Its value doesn’t fluctuate wildly against consumer goods day-to-day, and it’s universally accepted.

Yet beneath this veneer lies a risk that few acknowledge: the consistent erosion of purchasing power through monetary expansion.

Over decades, central banks have steadily increased the money supply to finance government debt, bailouts, and economic stimulus programs. This has been allowed to occur because a small cabal of technocrats control the price of money.

A few months ago, free market supporters were in an uproar when Democratic leaders suggested that price controls be imposed on consumer goods. But there is no comparable response to the fact that price controls are already imposed on money itself – the most saleable good of all.

Printing money is politically expedient, but it is equivalent to a tax on people and business that hold cash – often these are members of the lower and middle classes. As the supply of dollars grows unchecked, the currency's purchasing power declines. The risk is subtle but pervasive: year after year, your dollars buy less.

Wages may eventually catch up, but surprisingly little attention is given to the emotional strain and dislocation caused by inflation while wages lag behind, forcing workers and business owners to continually reassess prices, employment arrangements, capital investments, and other aspects of business operations.

In this environment, savers are told that they would be silly not to “invest” their money in risk-laden financial instruments that they probably do not fully understand, just to keep pace with inflation. This is not stability – it’s a precarious balancing act designed to accrue more wealth to the wealthy and obscure the true risks of an inflating fiat system.

Bitcoin’s Volatility: A Feature, Not a Bug

Bitcoin’s volatility reflects something fundamentally different. It is going through a process of price discovery, where millions of individuals, institutions, and nations are determining its role in the global financial system. Economists refer to this phenomenon as “monetizing,” where an asset transitions from serving a niche to becoming widely accepted.

During this period, bitcoin’s price will inevitably swing dramatically. Early adopters speculate, institutions cautiously test the waters, and market participants react to news, emotions, and trends. This volatility, while unsettling to some, is a natural stage in the lifecycle of any asset undergoing rapid adoption. Over time, as adoption matures and liquidity deepens, bitcoin will be further along in its journey of price discovery. Its volatility is expected to diminish, much as gold’s purchasing power stabilized as it gained universal acceptance.

The Illusion of Stability in Traditional Systems

Policymakers and central bankers often present their interventions as necessary to ensure “stability.” Through mechanisms like interest rate manipulation, quantitative easing, and outright market interventions, they attempt to smooth over volatility in traditional markets. But this veneer of stability comes at a cost – it masks systemic vulnerabilities and concentrates risk.

Consider how unelected central bankers make decisions that affect the economic well-being of billions, manipulating interest rates and printing currency with few checks on their power. The appearance of stability masks an underlying fragility. If a currency devalues rapidly, as seen in hyperinflation or currency crises, the fallout can be catastrophic, erasing savings and destabilizing society.

Since 1971, when the United States fully transitioned to a dollar system based purely on fiat, there have been dozens of hyperinflation events worldwide. According to a comprehensive study by economists Steve H. Hanke and Nicholas Krus, there have been 56 episodes of hyperinflation in recent history.

Bitcoin’s volatility, in contrast, does not conceal its risks. Its value is determined transparently in open markets, without backroom deals or interventionist policies. This transparency may appear chaotic in the short term, but it is physically impossible for bitcoin to hyperinflate without the consent of its users. This ensures that risks are priced in honestly rather than hidden beneath layers of financial engineering.

Volatility as an Opportunity

For long-term investors, volatility is not inherently a threat – it’s an opportunity. Price fluctuations create entry points for those with a clear understanding of an asset’s fundamentals. Bitcoin’s volatility, far from being a weakness, signals a dynamic, evolving market.

In a world where fiat systems are increasingly strained, bitcoin offers a different kind of risk – one that is visible, understandable, and reliably constant. Compare this with fiat currencies, whose risks are obscured by policy decisions and centralized control. Over decades, bitcoin’s fixed supply, transparent governance, and growing adoption mean that it less risky than fiat currencies, even if its price remains more volatile in the near term.

Embracing the Future

Understanding the distinction between volatility and risk is key to understanding what is really happening with bitcoin today. Rather than watching the price of bitcoin to try to determine its value, start by understanding that it follows a fundamentally different model for how money can work, one based on transparency, scarcity, and beyond the control of individuals and political interest groups.

As bitcoin matures, its volatility is likely to settle, leaving behind an asset whose long-term stability is built on solid fundamentals, not centralized control. Bitcoin’s volatility doesn’t mean it’s risky. For those willing to look past the short-term noise, bitcoin’s volatility is not something to fear – it’s a sign of its transformative potential.

Why 2025 May Be The Right Time To Create National Bitcoin Reserves

Bitcoin as the new gold for national reserves

No central bank can block Bitcoin transactions. No foreign government can freeze Bitcoin assets. No international organization can limit Bitcoin transfers. Supply is fixed at 21 million coins. These features make Bitcoin a unique option for national reserves, experts say.

Bitcoin Frees National Reserves

Bitcoin allows countries to own sovereign wealth that exists outside the banking system and state borders. Any nation can store and transfer billions in value without relying on foreign banks, clearing systems or physical vaults. This gives countries true financial sovereignty impossible with traditional reserve assets like gold or foreign currencies.

"Bitcoin's independence from traditional systems such as SWIFT or the IMF allow countries to invest in options beyond the reach and control of more powerful, overreaching countries. Traditional systems are heavily regulated and controlled by larger governments, allowing those in control to strong arm others into doing things that may be detrimental to their own citizens and well being," said Matthew Ruley, Director at Dypto Crypto, in an email statement.

Smaller nations gain most from early Bitcoin reserve adoption. They face risks from inflation, currency devaluation and foreign financial control. Bitcoin gives them an accessible, independent store of value that larger economies cannot block or devalue. Starting with small allocations lets countries test Bitcoin's benefits while keeping traditional reserves.

“It is really smaller, less stable nations that stand to benefit most from a national Bitcoin reserve to hedge against global inflationary pressures as well as their own fiat currencies. Similar to how many countries hold gold bullion in reserve as a store of value, Bitcoin can be considered as digital gold, but even rarer as its supply is fixed at 21 million coins," said Michael Ashley Schulman, Chief Investment Officer at Running Point Capital Advisors, in an email statement.

Bitcoin Reserves Don't Weaken National Currency

El Salvador became the first nation to test Bitcoin both as a reserve asset and legal tender for payments. Citizens continue to prefer fiat money for daily transactions, confirming Bitcoin's stronger role as a national reserve than a currency replacement. Adding Bitcoin reserves provides extra financial stability, which helps strengthen the national currency.

"El Salvador, which has faced high inflation, could benefit from the stability Bitcoin can offer. Early adoption by nations as a reserve asset could position them as leaders in the evolving digital economy," said Georgi Todorov, Founder at Create & Grow, in an email statement.

Bitcoin No Longer As Volatile As Before

Monthly volatility rankings reveals Tesla leading at 24%, followed by AMD and NVIDIA, with bitcoin ... [+] at 11% and most tech giants showing lower volatility.

Andrey Sergeenkov

Bitcoin's volatility has steadily declined over the past years. By October 2024, Bitcoin's monthly volatility of 11% fell below Tesla (24%), AMD (16%) and NVIDIA (12%), three of the most actively traded tech stocks.

Risk-adjusted returns (Sharpe ratios) demonstrates Bitcoin's dominance at 4.35, followed by NVIDIA ... [+] at 3.65, with most tech stocks showing negative ratios.

Andrey Sergeenkov

Even before bitcoin's rise to $100,000 in November, it offered the best reward for volatility risk in October 2024. Its Sharpe ratio of 4.35 meant each unit of price volatility brought more returns than NVIDIA's 3.65 and Google's 1.38, while Tesla, AMD and five other analyzed tech stocks showed negative reward for their volatility risk.

Scatter plot comparing Sharpe ratios against monthly volatility shows bitcoin and NVIDIA leading in ... [+] the top-left quadrant, while most tech stocks cluster in lower volatility but worse returns area.

Andrey Sergeenkov

With volatility now comparable to major tech companies, bitcoin showed it can maintain market-level stability. Its position on the risk-return chart demonstrated the best balance: moderate 11% volatility combined with the highest returns for the risk taken.

Moving Bitcoin Reserves Is Cheap And Fast

Bitcoin storage and transfers cost a fraction of traditional methods. A country can move $1 billion in the Bitcoin network for less than $100 in fees. Gold transport costs 0.5-1% of value moved plus security expenses. International wire transfers through SWIFT cost 0.3-0.5% of value and can take 2-5 business days.

"A nation with Bitcoin reserves controls them fully without third parties. No foreign banks store it, no ships transport it and no vaults guard it. One private key gives instant access to billions in value that moves at the speed of the internet," said Lee Bratcher, president of the Texas Blockchain Council, in an email statement.

Institutional Bitcoin Practices Already Work

Banks and financial companies established proven practices for handling institutional Bitcoin operations. Major institutions already manage secure custody, execute large-scale trades and move significant bitcoin holdings. Countries can adapt these tested institutional approaches for their national reserve operations.

"The technological infrastructure has matured significantly, featuring improved institutional custody solutions, advanced DeFi protocols and better security measures. The regulatory landscape is clearer than in previous cycles, providing greater certainty for all market participants," said Anton Chashchin, Founder & CEO of N7 Capital, in an email statement.

Countries Can Mine Instead Of Buying Bitcoin

Nations can acquire Bitcoin through mining with untapped renewable energy. Hydroelectric, solar and wind power often goes unused in remote locations because energy loses power over long transmission distances. Bitcoin mining solves this by converting excess green energy into value directly at the source.

Bhutan demonstrates this model using its abundant hydroelectric resources. The country built Bitcoin mining operations next to power plants in the Himalayas, converting previously wasted energy into national reserves worth $750 million. This approach lets countries build Bitcoin reserves through clean energy that would otherwise be unprofitable to capture and transport.

Bitcoin Offers New Option For National Reserves

“The dollar, although still dominant, has faced criticism due to its political weaponization and with an echoing call among BRICS nations for de-dollarisation, its global position is uncertain. Gold on the other hand lacks the liquidity and flexibility required in today’s fast-moving digital world,” said Roy Mayer, CEO at Vixichain, in an email statement.

Bitcoin offers a new option for long-term national wealth storage. While traditional currencies face risks from hyperinflation and political changes, Bitcoin's fixed supply and decentralized network provide stability. Nations can add Bitcoin to diversify their reserves for future generations.

"The right time to start a national Bitcoin reserve was about five or six years ago when bitcoin was much cheaper, but failing that, now is not a bad time to start one," concluded Michael Ashley Schulman. "2000 years from now, when mankind is living in space, most of the currencies we know now will probably be long gone, but Bitcoin should still be around."