Bitcoin Volatility Rate Is Slowly Decreasing, Making a Stronger Case for BTC as ‘Real’ Money
Bitcoin has a bad reputation to be highly volatile and incredibly unpredictable. As a matter of fact, it does not respond to any of the things that usually move traditional currencies, stocks, and shares, or commodities. However, this is no longer the trend. The volatility is evidently decreasing.
The chart below shows the volatility of the top cryptocurrency is in a clear decline as its monetization advances. It is clear that extreme daily returns are becoming less common in 2019 than years earlier.
Bitcoin volatility is in a clear decline as its monetization advances. Extreme daily returns are less frequent and less extreme than in the past. Shaded area marks 2019 range. pic.twitter.com/qjfAcMPES6
— Fernando Nieto (@fnietom) June 12, 2019
Just looking at the numbers, it will become increasingly clear why that is the case. In 2018, Bitcoin lost 85% value, from $20,000 to $3,200. This year, Bitcoin rose to more than $9,000 and now hovers around $8,100. If the pattern of the last two rallies repeats, Bitcoin could rise to $60,000 to $400,000 before crashing 85% again. Just think about it, these numbers are insane and there are many people who will not like the outcome of this scenario. Warren Buffet’s accusation of Bitcoin being a “gambler’s tool” will be a mainstream reality.
That will not be. The cryptomarket is far different from what we have seen earlier. There are far more cryptoassets and far more users. More than $30 billion of investment capital was spent in 2018 building platforms and code bases. The regulatory picture has clarified considerably, and big companies including JPMorgan Chase & Co. and Facebook Inc. are jumping into the sector.
Regarding the aforementioned graph, Nic Carter, the co-founder of Coin Metrics says:
“Using standard deviation is the overwhelmingly popular way to measure volatility in finance and it shows a decreasing trend.”
The standard deviation of daily returns for the preceding 3months windows. These are measures of historical volatility based on past Bitcoin prices. For comparison, the volatility of gold averages around 1.2%, while other major currencies average between 0.5% and 1.0%. To be fair Bitcoin still has a long way to go to be comparable to the volatility of already established assets. Although, Gold has a market cap of about $8 Trillion while Bitcoin’s currently is at $147 Billion, making it around 2% of Gold.