In a recent interview, Vitalik Buterin discussed the health of the cryptocurrency markets and the potential for blockchain technology in the future.
In the medium run, he anticipated that the volatility of the cryptocurrency market will decline to that of equities and gold, albeit he did not specify at what price.
The developer also discussed the growing adoption of proof of stake consensus in the cryptocurrency world, the future of proof of work, and what he expects of Bitcoin in the future.
The Current Crypto Market
In an interview with Noah Smith, Vitalik Buterin stated that the current “crypto winter”, a.k.a. the long period of depreciation of cryptocurrency assets, is not a surprise to him.
In fact, Buterin shared that he was actually surprised that the crypto winter hadn’t started sooner.
The Ethereum co-founder believes that cryptocurrencies are bound to go on different cyclical phases, altering between constant rises and falls.
“Today, it feels like people are reading too much into what is ultimately cyclical dynamics that crypto has always had and probably will continue to have for a long time,” Buterin told Noah Smith. “When the prices are rising, lots of people say that it’s the new paradigm and the future, and when prices are falling people say that it’s doomed and fundamentally flawed.
The reality is always a more complicated picture somewhere between the two extremes.”
What to Expect in The Near Future
Market cycles for cryptocurrencies generally lasts around four years. Matching the roughly four-year halving of the pace at which new Bitcoin is issued.
Buterin believes that once the world becomes accustomed to the use of cryptocurrencies in their daily lives, cryptocurrencies will have a tendency of becoming a lot less volatile.
The Canadian-Russian attributes that to the fact that Bitcoin is a lot more famous today, which makes the currency seen as less “uncertain” from an investment standpoint.
“In my view, a lot of the volatility early on had to do with existential uncertainty.” The Ethereum co-founder stated. “In 2011, when Bitcoin dropped from $31 to $2 over six months, people really didn’t know whether or not Bitcoin was just a one-time fad that would then collapse for good.”
“In 2014, this uncertainty was less than before, but it still existed.” He added. “And then after 2017 the uncertainty moved over to whether or not it would gain the levels of mainstream legitimacy needed to support a higher price level.”
Comparing Bitcoin to Gold
The Ethereum co-founder believes that cryptocurrency has the potential to substitute gold in the future.
Usually, gold is seen as an asset that functions as a storage of value against the US dollar. When the U.S. enters a recession, or there is bombastic news that could make dollar investments riskier, gold tends to rise, functioning as a deflationary asset.
A fine example would be to just see what happened to gold prices during the pandemic. As the world entered a possible economy-breaking event, gold continued to gain value in the market, reaching its all-time high price in October of 2020.
With the reports of an economic recession reaching the world’s biggest economies after the pandemic, Gold once again reached an all-time high, breaking its 2020 record by reaching US$2,074.60 on March 8, 2022.
Aside from major events, Gold is also seen as a good investment due to its low volatility.
For this reason, Buterin believes that once cryptocurrencies stabilize their volatility, they could resemble Gold as an asset in the future.
“I definitely think that in the medium-term future cryptocurrencies will settle down and be only about as volatile as gold,” he said.