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Francis Pouliot: Shake Off Bitcoin’s Volatility, It’s a “Life Raft if the Titanic Goes Down”

Mar 1, 2018
by Josh Anderson

MONTRÉAL, QUÉBEC – Bitcoin is hot. But as with any hot asset, that comes with risk. That’s been on full display in recent weeks, with Bitcoin’s rise and fall front and center of many publications. At CapRE’s Second Annual Greater Montréal & Québec Data Centre Summit, we convened a panel of crypto-mining experts to discuss the future and potential of this new phenomenon. After a deep dive into the role that blockchain plays in all of it, a member of CapRE’s audience asked the million dollar question: How should investors assess the volatility that bitcoin is experiencing?

Francis Pouliot, Co-Founder of Research and Cryptoassets at Catallaxy took the microphone to provide a very affirmative response. “Definitely, pension funds should look into buying bitcoin despite the volatility,” he replied. “The reason that the volatility is here is because of all of the friction in the banking system for trading, for one. And a bunch of the liquidity issues, because bitcoin is simply illiquid. It is very hard to liquidate.”

Francis Pouliot, Co-Founder for Research and Cryptoassets, Catallaxy

Pouliot then pointed out how there exists an entire eco-system of businesses that are in the midst of transferring from fiat to bitcoin, but that are being given a pretty hard time from the banking sector, which is shutting them down. This is, in effect, making bitcoin more volatile than it would otherwise be. “But the volatility is not a bad thing,” he said.

Next, Pouliot cautioned that volatility is indeed a good thing. “I would suggest that you all read more readings of Nassim Nicholas Taleb – one of the most brilliant minds in probability and statistics,” he advised. “He argues that if you remove volatility from the system, imagine like a bubble boy, you are removing all of the things from the outside of your system – rather than getting shocked and evolving, in which you are just being protected.”

“So the benefit of volatility in a decentralized system is the absence of systematic risks or centralized risks,” he explained. “In the case of bitcoin, one exchange can fall, the price can go down, but the bitcoin system itself can never go out. The price that you are paying for artificial stability, which is, for example, stability through quantitative easing — the price that you pay for that is systematic risk.”

To be clear, Pouliot then emphasizied that even though Bitcoin is a volatile asset, in the case of systematic risk, “you want to have this asset which is not correlated to the other parts of the systematic risk.” And he then urged the gathering to think-long terms. “So you would not want to invest on it in the short-term, because the volatility is high,” he concluded. “So in the bitcoin community we say buy it and sit on it. Because this is your insurance. This is your ticket on the life raft, in case the Titanic goes down.”

Check out previous CapRE Insider Reports covering this panel with Pouliot:

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