In his August 2014 paper entitled “Bitcoin Myths and Facts”, Campbell Harvey examines eight claims about bitcoin. One of these claims is that bitcoin is currently too volatile to serve as a store of value. Using daily data for the dollar-bitcoin exchange rate during mid-July 2010 through mid-August 2014, he finds that:
- Over the last four years, Bitcoin is about eight times more volatile than gold and the U.S. stock market and 18 times more volatile than the U.S. dollar.
- Over the last 12 months, the standard deviation of daily bitcoin returns in U.S. dollars is a little over 6%.
- The worst (second worst) daily return for the S&P 500 Index since 1957 is -20.5% (-9.0%) on October 19, 1987 (October 15, 2008). Over the last four years, bitcoin has returns lower than -20.5% (-9.0%) on 13 (78) days.
In summary, its extreme volatility makes bitcoin an unreliable store of value, even for a single day.
The history of bitcoin is very short for any annualized perspective. Bitcoin also offers limited capacity.
