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Currently, the volatile price of cryptocurrencies such as Bitcoin means that they are currently poor stores of value and therefore are unlikely to achieve mass adoption. What can be done to stabilise the price of a cryptocurrency, apart from pegging the cryptocurrency to a fiat currency?

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  • $\begingroup$ Is this question different from how can we stabilise the exchange rate of a currency without pegging it? Does the currency being crypto add any twist to it? $\endgroup$ – Giskard Oct 27 at 7:33
  • $\begingroup$ Yeah -- it does. Cryptocurrencies are not actuslly currencies. They are volatile assets that fail to meet any reasonable definition of currency. $\endgroup$ – 123 Oct 27 at 16:56
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First it might be useful to list the reasons behind cryptos' volatility.

One of the reasons is that cryptos have no underlying value. In contrast to other assets like oil, gold, company shares, etc. that you could make use of them, cryptos are similar to fiat currencies in that they're not fully backed... but in the case of fiat currencies, at least (in my understanding) there are laws that make them valuable ("these notes can be used to settle debts" or something similar.)

Value of most cryptos are determined, therefore, by "investors"' beliefs.

To "fix" this, you could, as you suggested, peg it to fiat currency (or basket of currencies), or you could back it up with other assets/commodities.

Other reasons (you could Google why cryptos are volatile) include having many retail investors holding a significant portion of the asset, not having that many institutional players in the market, etc. could be analyzed accordingly to make cryptos more stable.

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