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fernandonm/inherent_volatility.pdf

Last active June 27, 2023 17:58
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Why is bitcoin inherently volatile?
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@millerjoey
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From my points 1, 2, and 3:

  1. Pay attention to the difference between predictable vs. unpredictable returns. I was making the narrow point that in expectation and in equilibrium, you'd expect the return to be 1/discount_rate, which is the risk-free rate.

  2. I'm not sure how useful it is to define away the subjective discount factor and treat it all as risk. Are people indifferent between a guaranteed 1 util today and a guaranteed 1 util in one year? Also not sure if this changes my interpretation of your argument or not.

  3. This point is circular, so I don't see how it proves anything about a hypothetical world where we used S&P or Bitcoin as money. If we denominated salaries in S&P shares, there would also be no uncertainty in nominal income.

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