The Price of Bitcoins: Chaos or Complexity?

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If you are interested in Bitcoins, you will probably have noticed how volatile its value has been, in U.S. Dollars or in Euros. Just go to www.coindesk.com/price/ to take a look for yourself.  Bitcoin is the leading, but only one of many, so called altcoins or cryptocurrencies.  What is going on?  Is it chaos or complexity?   Or is it chaos that will eventually turn into a more stable complex behavior?  As David Snowden points out in his Cynefin Framework, chaos is often associated with emerging fields, where the system is subject to actions and reactions that may amplify its behavioral responses  over time.  This hyper-sensitivity to initial conditions, as it is referred in complexity lingo, is likely caused by traders reacting to positive and negative news, and a general lack of understanding of how the news will affect confidence in the system. After all, it is possible that Bitcoin will fail and that its value will drop to zero.  As Michel Baranger puts it:  Any small uncertainty that may exist in the initial conditions will grow exponentially with time, and eventually (very soon, in most cases) it will become so large that we will lose all useful knowledge of the state of the system.

On the other hand, some systems can learn, evolve and emerge towards a more stable complex system. Professor Jeffrey Goldstein, at Adelphi, defines emergence as “the arising of novel and coherent structures, patterns and properties during the process of self-organization in complex systems”.  So the Bitcoin marketplace may evolve towards a more predictable currency with levels of volatility comparable to the Dollar, the Euro or Gold.  In the case of Bitcoin, however, there is still a lot of ground to cover:  There are many new users who may be interested in speculation rather than trading; the ultimate theoretical number of Bitcoins is a function of its mathematics and estimated at 21 millions.  It is not clear how this will affect the value of the currency over time, as it is more widely used.  This is typical complexity, though: a growing number of agents impacting one another in ways that are difficult to predict.  Only one thing is for sure: buy low, sell high.

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