Bitcoin is well known for its volatility, but what causes it? The authors of this paper  remark that the absence of an intrinsic or fundamental value represents a problem for the stability of the Bitcoin’s price as an asset.  They also consider some Önancial stability concerns that derive from the hypothesis that the bitcoin will survive as an asset subject to high speculation.

The lack of support from any goverment reinforces a vicious circle in which the Bitcoin is mainly demanded as an asset for speculative purposes rather than as a medium of exchange with a fundamental value. Similar to hyperinflation episodes, it is difficult to persuade people to make transactions with a currency that has a significant probability of losing 1 or 2% of its value overnight (of course it can also gain such value and that is why it can be very attractive for speculative reasons). It has been previously shown that most Bitcoins have been hoarded rather than used for transactions, confirming the dominant use of the currency for speculation.

The value of Bitcoin is market-determined. As a medium of exchange, the supply of Bitcoins is stable and will be constant from 2030 on. This feature, which has been promoted as a good characteristic of the currency, plays against its role as a medium of exchange since it rules out the possibility of responding to demand shocks with supply movements that help to stabilise its value.