Historically, cryptocurrencies like Bitcoin have been criticized for their volatility, a trait which is often cited as a hurdle for crypto adoption in terms of real-world usage and increased interest from institutional investors. But according to new data, the No. 1 digital currency by market cap is actually less volatile than some of the largest and most popular stocks on Wall Street.
Bitcoin’s HV Much Lower Than in Early-2018
The data comes from CBOE Global Markets, which focused on the 20-day historical volatility (HV) of Bitcoin, a number which has fallen to 31.5% — comparable to the HV of Domino’s Pizza which sits at 36.2% (see complete chart on Market Watch).
This low HV is especially impressive when compared with the HV of major tech firms like online retail giant Amazon (35%), streaming service Netflix (52%), and computer chip manufacturer Nvidia Corp (40%).
Bitcoin has even crept to within a couple percentage points of tech giant Apple, which is sitting just below the coin with an HV of 29.3%. And when compared to the HV of five of its crypto cousins, including Ethereum, Ripple, Bitcoin Cash, and Litecoin, Bitcoin comes out the lowest.
Looking back to January, when the price of Bitcoin was tumbling from the all-time-highs of almost $20,000 registered in late-2017, the coin’s 20-day HV reached an astonishing 140% — almost 5 times higher than it is today.
Another related data point is Bitcoin’s standard deviation. In statistics, the standard deviation is a measure that is used to quantify the amount of variation in a set of data values. For our purposes, the standard deviation of Bitcoin can be used as a measure of volatility.
Kevin Davitt, a senior instructor at The Options Institute at CBOE, explained to Market Watch how Bitcoin’s standard deviation has changed drastically since earlier this year, dropping from +/- 42% to just +/- 7.3%:
“A one standard deviation move for Bitcoin at present is about $475. That works out to +/- 7.3% (475/6500). Compare that to earlier this year (mid-January) when Bitcoin was around $11,000. Back then the standard deviation measured $4640 or +/- 42%,” Davitt said.
Drop in Volatility Likely to Continue as Crypto Market Matures
This new data on Bitcoin is great news for many, in particular “crypto evangelists” who believe decentralized technology to be the new financial frontier. For them, the coin’s low HV is important because cryptocurrency detractors often cite excessive volatility as a significant hurdle for adoption of the coin and as a reason why some institutional investors are wary to get involved in the space.
Interestingly, that perspective is not shared by all: day traders, who make their money off Bitcoin’s price fluctuation, are actually yearning for its volatility to pick back up. But unfortunately for them, according to Davitt, today’s low HV may be pointing towards a “new normal” for the coin:
“Perhaps we are witnessing the maturation of a market. It’s far too early to declare this the “new normal” but the persistent range over the last few weeks may be hinting at a structural shift. Time will tell,” Davitt said.
Mike McGlone, a Bloomberg Intelligence commodity strategist, has a similar perspective. He explains that because the market is rapidly maturing, it is likely that price volatility will continue to decline with the introduction of more Bitcoin-related products and services:
“This is a maturing market, so volatility should continue to decline. When you have a new market, it will be highly volatile until it establishes itself. There are more participants, more derivatives, more ways of trading, hedging and arbitraging.”
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