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Cited in the 2008 Bitcoin white paper, Back argued volatility is typical even as regulatory clarity and institutional access expands.
What to know:
- Adam Back, an early Bitcoin figure referenced in the original white paper, indicated that the recent decline in cryptocurrency prices aligns with historical four-year cycles and reflects intrinsic volatility rather than a flawed thesis.
- Despite an increasingly supportive policy landscape in the U.S. and the introduction of spot bitcoin exchange-traded funds, bitcoin has dropped approximately 26% over the past year, while traditional safe havens like gold and silver have seen gains.
- Back suggested that institutional engagement in bitcoin is still nascent and that broader acceptance over time should help to stabilize price fluctuations.
MIAMI BEACH — Bitcoin’s recent decline has caused frustration among investors who anticipated a more stable trajectory following a series of institutional advancements. However, Adam Back, one of the early cypherpunks mentioned in Bitcoin’s 2008 white paper, stated that this volatility should not come as a surprise to seasoned observers.
“Bitcoin is generally volatile,” Back remarked at the iConnections conference in Miami Beach on Tuesday. “There’s a lot of positive news […] and in past four-year market cycles, this phase has typically seen prices trend downward.”
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He noted that certain market participants may be trading based on this historical trend instead of responding to fundamentals. “There was some expectation or possibility that, because there are different types of investors, the market can behave differently. So I think some individuals are considering that the price may rebound later this year.”
At the start of the year, Bitcoin enjoyed favorable conditions. The presence of a more crypto-friendly administration in Washington and the anticipated regulatory clarity regarding spot exchange-traded funds (ETFs) were expected to facilitate deeper institutional involvement.
For numerous investors, this was perceived as a critical testing ground. The fundamental appeal of Bitcoin has long revolved around its scarcity and independence from governmental monetary policies, positioning it as a digital store of value aimed at countering currency devaluation. Given the extensive U.S. fiscal deficits and ongoing concerns regarding the dollar’s long-term purchasing power, the circumstances seemed to align with that premise.
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However, the market has not adhered to these expectations. Bitcoin has decreased by approximately 26% over the past year, despite a more favorable policy landscape and enhanced institutional access. Rather than decoupling from macroeconomic uncertainties, the asset has occasionally mirrored broader risk markets.
In contrast, traditional safe havens have experienced rallies. Gold has reached new all-time highs, with silver also achieving multi-year peaks. Capital seeking refuge from inflation worries and geopolitical risks seems to have shifted, at least partially, into metals instead of digital assets.
Back, who currently serves as the CEO of Blockstream and the Bitcoin Standard Treasury Company (BSTR), also highlighted structural dynamics regarding bitcoin ownership.
“The ETF holders […] tend to be more committed investors than retail bitcoin exchange traders,” he remarked. Retail investors often allocate most of their capital during market upswings, leaving minimal liquidity during downturns. Institutions, on the other hand, can adjust their portfolios across various assets.
Nevertheless, Back emphasized that institutional adoption is still in its infancy. “I think there isn’t that much institutional capital yet.”
In his perspective, substantial pools of capital have not yet thoroughly entered the market, even though major regulatory challenges have been addressed and clearer guidelines could facilitate further institutional inflows.
Over time, he anticipates that wider adoption will mitigate volatility. He likened bitcoin’s current stage to the early phases of high-growth stocks. “You can draw parallels to, for example, early Amazon (AMZN) stock, which experienced significant price fluctuations due to market uncertainty.”
“The rapid adoption curve inherently entails volatility,” he stated. As adoption matures and more institutions, businesses, and sovereign entities gain exposure, Back indicated that bitcoin’s price fluctuations should stabilize. He does not foresee the elimination of volatility, but he believes it may begin to resemble gold, which experiences less dramatic price movements than an emerging asset.
Back also noted that he evaluates bitcoin’s long-term potential in relation to gold’s total market capitalization. He contended that comparing the two market values provides a rough gauge for adoption, and he believes bitcoin is currently approximately 10 to 15 times smaller than gold, indicating potential for further growth as it continues to secure its position as a store of value.
Despite short-term price fluctuations, Back maintained that bitcoin’s long-term investment narrative remains robust. “Bitcoin as an asset class has distinguished itself from all other asset classes over the past decade, consistently delivering the highest annualized return,” he stated.
For Back, volatility is not a contradiction of bitcoin’s thesis but rather a characteristic of its adoption phase. “Volatility […] is part of the picture,” he concluded.
