Bitcoin is not inherently volatile

A response to

This piece from Fernando Nieto claims that any asset that is expected to constantly appreciate in value – as Bitcoin is expected to, as its supply is strictly fixed, the other option is for Bitcoin to die, but we’re not considering that hypothesis – will necessarily be very volatile.

It is not clear what “volatile” means, but we’ll assume it means the market value of this asset will vary against the market value of all the other things strongly and annoyingly enough to make it useless as a unit of account. We can’t just consider “the price of Bitcoin against the Dollar”, it must be against “everything”, otherwise we could just assume the volatily was happening on the Dollar side, not on the Bitcoin side.

The value of an asset can only grow due to uncertain future returns becoming increasingly certain as time passes. Any future value expectation is priced in from the very moment it becomes certain. Hence, the same uncertainty inherent to investiments expected to provide a return – e.g. an increase in the value of each bitcoin – makes them inherently volatile.

This is the claim, and also considered an explanation as it says “the article could end here”, but the explanation is missing one piece, which is given many paragraphs below:

Even if sometimes you may appreciate a return exceeding the cost of volatily risk, returns are always offset at the margin by the costs of holding the asset. If any asset offered a risk adjusted return opportunity clearly more attractive than the rest, that would be immediately arbitraged away (…)

The essence of the argument is that there cannot be an asset that increases in value without risk, otherwise that value increase would be arbitraged away. In other words, if Bitcoin is to increase in value constantly and predictably accross the years, then its price should be arbitraged away in a manner