Declining Volatility May Unlock Next Stage of Bitcoin Growth

Joe Burnett, Vice President of Bitcoin Strategy at Strive, suggests that the decline in Bitcoin's volatility is not a sign of the end of rising prices, but rather a change in its quality as collateral. According to Burnett, when capital competes with dollar credit for a fixed supply, prices may break through old trajectories and accelerate again.

Burnett references materials science to describe Bitcoin's monetization process. He argues that it follows a similar trajectory to the crack propagation curve, where three regions exist: discovery, maturity, and monetization driven by the financial system. In this analogy, the dollar credit system is the material continuously under pressure.

Bitcoin's volatility has significantly decreased from 147% in March 2014 to about 44% as of this writing. Burnett believes that declining volatility will improve Bitcoin's risk-adjusted returns and make it easier to finance using Bitcoin as collateral. This, in turn, may drive Bitcoin's price to accelerate again.

Burnett also points out that the maximum drawdowns in previous cycles are narrowing, indicating a decrease in volatility. From the lender's perspective, lower volatility is attractive because Bitcoin is becoming higher quality collateral.