Bitcoin’s volatility is higher than normal – but should we be concerned?
Bitcoin’s perceived volatility reached levels as high as March 2020, the month in which Bitcoin crashed on account of COVID-19, according to data from analyst Skew.
Bitcoin realized volatility continue to climb, highest since 2020 March crash. pic.twitter.com/iz5ADzFoYZ
– unfolded. (@cryptounfolded) January 24, 2021
‘Realized volatility’ refers to the average price fluctuation of a currency over a period of 30 days. Skew measures volatility by calculating the standard deviation in Bitcoin’s price over time.
Last month, the number reached 103%, the company data showed. This means that, in the last 30 days, Bitcoin’s price has deviated from its average price by 103%.
Contributing to this over the past month are the sudden ups and downs of Bitcoin’s price. A major settlement on January 11 caused Bitcoin to suffer its biggest daily price drop and, in the previous weeks, the Bitcoin reached almost $ 42,000, its highest price ever.
Although the volatility numbers are similar to last March, when Bitcoin fell as soon as the pandemic started to gain momentum (like everything else), the main difference is that we are in a bull run.
During a bull run, price fluctuations are more common, as investors close two positions at different points. Pedro Febrero, an analyst at Quantum Economics, told Decrypt:
“The more volatility the price has, the greater the magnitude of the variation in Bitcoin prices. During a bull run, this is to be expected. ”
What goes down… can go up
Despite Bitcoin’s volatility, it outpaced other assets, like gold, last year.
In addition, Bitcoin’s volatility is generally decreasing: as the price and market capitalization of the cryptocurrency increase over time, the volatility of the asset decreases.
And in the past year, Bitcoin and other cryptocurrencies have appreciated and outperformed traditional investments.
An anonymous investor tracked ten cryptocurrencies throughout 2020 and found that they performed eight times better than the U.S. stock market: his $ 1000 investment in cryptocurrencies grew 139%, while the S&P 500 rose 16%.