Economist and “The Bitcoin Standard” author Saifedean Ammous published a detailed response to economics professor Lawrence White, challenging White’s argument that Bitcoin’s fixed supply causes excessive volatility and prevents its use as a medium of exchange. Ammous argued that predictable issuance and constrained supply could instead support bitcoin’s evolution into a global monetary asset.

Fixed supply and purchasing power

Ammous rejected the claim that a monetary system’s supply must expand when demand rises. He said gold’s historical advantage over other metals lay in the limited ability to increase its stock.

Bitcoin extends that property through predictable issuance, the absence of industrial demand and the lack of a centralized issuer, Ammous said.

“Why should the property that made gold better than other commodities become a drawback when bitcoin perfects it?” Ammous asked.

With a fixed supply, rising demand increases money’s purchasing power, according to Ammous. He said this allows the existing amount of the asset to support larger monetary balances without additional issuance.

Ammous cited World Gold Council data showing that gold stocks grew by an average of about 1.7% annually over the past 25 years. Even significant changes in the metal’s price had little effect on production volumes, he said.

Volatility could decline as liquidity grows

Ammous also addressed bitcoin’s volatility, referring to research by Fidelity, Charles Schwab and other organizations that points to a long-term decline as the market matures.

According to data he cited, bitcoin’s 252-day realized volatility fell to a level only 1.52 times higher than the equivalent measure for gold. Ammous said further growth in bitcoin’s market capitalization and liquidity would help stabilize its price.

“I expect that further monetization of bitcoin will lead to an increase in cash balances, deeper liquidity, and lower volatility,” the economist said.

He also rejected the argument that bitcoin’s limited use for everyday payments prevents it from becoming money. Accumulating the asset to preserve purchasing power already represents one of money’s functions, Ammous said.

Bitcoin currently accounts for about 1% of global cash balances, according to Ammous, who expects its share to continue rising. He said significant price swings are inevitable while a global monetary asset is forming, but that BTC’s value growth could become slower and more stable once that process is complete, reflecting the development of the global economy.

Bitwise analysts previously said bitcoin increasingly resembles digital gold amid shifting market dynamics. Fidelity has also highlighted volatility’s role in assessing bitcoin market cycles.

Source: Incrypted