Bitcoin was 26x more volatile on a weekly basis than the euro in 2022, up from 19x in 2021 and 16x in 2020.
- There is a perception that Bitcoin’s volatility is declining, but the data fails to support this
- Bitcoin volatility declined until 2015, but has not improved since then
- When you compare asset returns to the Nasdaq and individual stocks, it blows them out of the water
- Bitcoin’s average volatility against the US dollar on a weekly basis was 26x compared to the euro last year, up from 19x in 2021 and 16x in 2020.
Bitcoin and volatility are like two of the leads in a rom-com. They might have some time apart on and off, but you know they’ll be back together pretty soon.
But are things getting better? I’ve written a lot about what I believe is the single biggest Bitcoin challenge ever to “achieve” anything of note – volatility. we are in CoinJournal.net Go ahead and assess if the situation is improving.
The first step is to plot the realized swings. We averaged the annualized mark over a 30-day window, which in layman’s terms means we assessed the amount of traffic by looking at a 30-day window.
The diagram shows two things right off the bat. The first is that bitcoin was ubiquitous until 2015, which is not surprising. At that point, it was still a niche online currency that few people had heard of, and its liquidity was minimal. While this article strives to assess whether Bitcoin volatility is declining, it is difficult to place any weight on the pre-2015.
The short answer is that it has definitely declined since before this time, but you don’t need much analysis to conclude that. The interesting part is whether it continues to decline. Let’s focus on the time period since 2015.
Certainly a less perceived trend, but one that looks like the end of the tail – which is the latter half of 2021 and 2022 and the beginning of 2023 – could indicate that Bitcoin has cooled off a bit.
However, upon further examination, it doesn’t really hold true. The period is devoid of any large, isolated highs we’ve seen in the past – see March 2020 above, for example – which makes it look like it was quiet. But aside from not offering a blowout for a short move, the past two years have still offered semi-constant volatility, not unlike what we’ve seen in many years prior.
“I was expecting more improvement in bitcoin volatility,said Max Copeland, Director of CoinJournal. “There is a common perception in the space that bitcoin’s volatility is declining. But the CoinJournal research team has had a hard time backing this up with numbers.
In truth, while the period since 2015 has undoubtedly seen Bitcoin go mainstream and its price skyrocket as a result, its trademark volatility remains as fierce as ever. Bitcoin, in the short term at least, is still more of a gamble.”
Bitcoin is still too volatile to be a store of value
Bitcoin is still yoyoing as if there is no tomorrow.
The chart below is perhaps a more intuitive display of this. The simple fact is that if an asset functions as a store of value, these days of 5%, 6%, 7% (or more) moves are bound to become a thing of the past.
It has not happened yet.
The point is simple, but one worth repeating. An asset cannot claim to be a store of value (and certainly not a currency) while it swings wildly. People refer to developing world currencies as insecure for storing one’s wealth (and they’re right – looking at you Lebanon, Argentina and Venezuela), but bitcoin is still a currency that can crash by 20% overnight. Is this much better?
Volatility decreases over long periods of time
Like anything else, Bitcoin’s volatility flattens out a bit when evaluated on a larger timeframe.
The following chart plots the average daily returns over the past 30 days. Again, a noticeable downward trend until 2015, but not much improvement after that.
Zooming in on the previous chart, looking at the period since January 2020 (i.e. the pandemic bull market and post-pandemic crash) shows that while these moves aren’t very big – they’re only 3% – they’re still there. . daily rates, That is, the average profit and loss is calculated. Even then, 3% on a daily basis is way over what it needs to be.
Bitcoin’s volatility cannot be compared to mainstream assets
When comparing Bitcoin to anything but other cryptocurrencies, the contrast is stark. If Bitcoin is a mainstream asset, it carries unparalleled volatility. This, above all, is the fatal point.
An apt comparison is the Nasdaq, which is the more technically heavy index and therefore subject to more volatility. Over the past couple of years, this has been especially true as the world has moved into higher interest rates and the stock market has been playing a game of cat and mouse with the Federal Reserve.
Technology is particularly sensitive to interest rates because profit is not a favorite word in Silicon Valley. Rather than earnings, companies are typically valued on the promise of future cash flows, with unicorns seeing fat valuations off the back of these future cash flows discounted at 0% rates. This is no longer the case, and so we have seen stock prices crash and layoffs across the sector.
However, comparing the volatility of the Nasdaq to Bitcoin is like comparing a great white shark to a goldfish. It’s not a fair fight.
Of course, the Nasdaq is a 100-share index, and so when I say it’s not a fair fight to compare its volatility to bitcoin, that’s literally the case.
But even if we plot the volatility of some individual stocks on Nasdaq against Bitcoin, the difference is clear.
In short, Bitcoin has a long way to go. In my eyes, this has always been her biggest challenge: overcoming this fickleness. If not, what is really the point of this asset? You can’t have a value store if it’s subject to huge price drops.
I’ll end with another comparison – about where Bitcoin has to go, to show how far it still has to go. To be a store of value, Bitcoin’s volatility must be (at least) equal to the major currencies.
The chart below compares the volatility since 2015 to the euro, the newest of the “major” currencies, which was launched about two decades ago.
The last chart below illustrates this in another way, in weekly terms. In fact, on a weekly basis, bitcoin was 26x more volatile than the euro in 2022. It was 19x more volatile in 2021 and 16x more in 2020 — yet another piece of evidence that volatility is not dissipating.
Bitcoin clearly has a long way to go. This is accepted by most. But the idea that volatility is going down is wrong, at least for now.
As for the future, who knows?
We’ve drawn volatility metrics from Glassnode, with our analyst, Dan Ashmore, building the charts and comparing them to other assets. Stock price data has been scraped from Yahoo Finance.
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