Imagine a World Where Bitcoin’s Volatility Levels Equal Gold’s within a Decade from Now
Bitcoin, the pioneer of the cryptocurrency space is often considered to be the modern-day store of value and digital equivalent of gold. However, the comparison between Bitcoin and Gold does not really go down well with the Gold proponents as they believe gold has been the standard for quite long and has a very stable intrinsic value when compared to heavily volatile Bitcoin.
However, Bitcoin, as well as crypto markets in general, have matured significantly from its early days of existence. And many Bitcoin proponents believe that as technology progresses and its adoption grows with time, the volatility factor will be cut significantly too. The biggest sign that Bitcoin has cut down its volatility factor over the years is the surge of traditional wall-street investors in Bitcoin and crypto. The same traditional players who called Bitcoin a Ponzi scheme and a bubble waiting to bust has joined the bandwagon to expand their trading portfolio and also get lucrative returns on their investment.
Many Bitcoin proponents and analysts believe that Bitcoin would be able to catch up with Gold's volatility factor within a decades time. The prominent reason for Bitcoin's high volatility is a combination of various factors like low liquidity, unclear regulatory control, fundamental development, and unequal distribution makes Bitcoin quite volatile. The current market cap of Bitcoin stands at $140.7 billion in comparison to Gold's $7 trillion.
Among the analysts who are quite confident about Bitcoin matching Gold's volatility levels, Blacktown Capital, a digital asset manager is definitely quite bullish on the prediction. He says,
“Bitcoin volatility continues to decrease and approaches the volatility of Gold over the past 8 years. At the current rate, Bitcoin’s volatility will match that of Gold in a decade.”
Bitcoin Volatility Index Confirms Decreasing Volatility
If we look at Bitcoin's volatility index, it confirms the estimates of analysts about Bitcoin catching up with gold, as the volatility factor has been on a decline. If we look at the 30-day period, the volatility index is at 4.41 percent, while the value decreases to 3.94 percent for a 60-day period. If we consider the 251-day period the volatility factor comes down to 3.52 percent.
If we compare the volatility index for both Gold and Bitcoin from July 2011 to September 2018, Bitcoin volatility has narrowed down significantly and it has been moving towards closing the volatility gap. The thinnest difference between the volatility index of Bitcoin and Gold came between July 2015 and early 2017, after which the gap widened a bit towards the end of 2017, and dropped again thereafter. The widening of volatility index during the bull run is understandable given the massive jump in prices of Bitcoin.
Comparing Bitcoin's Volatility with Oil, US Real Estate, And US Stocks
If we move past the Bitcoin-Gold volatility comparison and focus on other assets like oil, US Real Estate, and the US Stocks, the volatility graph shows a similar movement. If we compare the volatility in prices of oil and Bitcoin from 2012 to 2019, the gap is narrowing and it was closest during 2015. The gap widened in 2018 and dropped again.
Currently, the volatility index of oil is at 9.10 percent, while Bitcoin is at 18.3 percent, Gold is at 10.9 percent, while US stocks are at 3.90 percent, US real estate at 4.22 percent, and emerging currencies have a volatility index of 7.17 percent. Among all the seven assets taken into consideration, only Gold, oil, and emerging currencies have volatility levels comparable to that of Bitcoin.
Another data published by the BitMex crypto exchange suggests that the volatility index of Bitcoin has ranged from 25.64 percent to 78.30 percent from April 1, 2019, to May 20, 2019.
The Golden Cross Factor
A golden cross is formed when a short term moving average crosses above the long term moving average. It is mostly used for technical analysis and to predict the next move of Bitcoin. However, there is an ongoing debate over the interpretation of the golden cross phenomenon, but many believe the formation of a golden cross as the sign of heavy volatility.
A Twitter user commented on the ongoing debate over golden cross factor stating,
“BTC Golden cross trajectory now April 24. (Was previously April 25). Should be interesting. A lot of hype that is the ‘bull run’ signal. If I were a bear or bull whale, that’s when I’d strike. Bull whale rides momentums of GC traders. Bear whale destroys their morale.”
Bitcoin has definitely shown signs of maturing from its early days and given the fact that it is only a decade old, it would definitely become more stable and reliable as the number of users grows and its use becomes more widespread. With major developments on the cards, the volatility index of Bitcoin is surely going to close down on Gold soon.