Bitcoin Was 26X More Volatile Than The Euro On A Weekly Basis In 2022, Up From 19X In 2021 And Up From 16X In 2020
key takeaways
- There is a belief that bitcoin volatility is decreasing, however data fails to back this up.
- Bitcoin Volatility Dropped in 2015, But Hasn’t Improved Since
- Comparing the returns of assets on the Nasdaq and individual stocks, it blows them out of the water.
- Bitcoin’s average volatility versus the USD on a weekly basis was 26x higher than the euro last year, rising to 19x in 2021 and 16x in 2020.
Bitcoin and volatility are like two leads in a rom-com. There might be some time off and on between them, but you know they’ll be back together soon.
But are things improving? I’ve written a lot about what I believe is the biggest challenge for bitcoin to ever “accomplish anything” – instability. upon us coinjournal.net Pigeons to assess whether the situation is getting better or not.
instability of feeling
The first step is charting the actual volatility. We annualized the mark on a rolling 30-day window, which means we assessed the magnitude of the movement by looking at a 30-day window.
The chart shows two things at once. The first is that until 2015, bitcoin was everywhere, which is not surprising. At the time, it was still a niche internet currency few people had heard of, and its liquidity was minimal. While this article is attempting to assess whether bitcoin volatility is declining, it is difficult to place any weighting prior to 2015.
The short answer is that it has definitely been down before this time, but you don’t need a lot of analysis to figure it out. The interesting thing is whether it continues to decline. Let’s zoom in on the time period from 2015.
A less perceptible trend, of course, but it looks like the tail end — that of late 2021, late 2022, and early 2023 — may suggest that bitcoin is cooling off a bit.
However, upon further inspection, this doesn’t really hold. The period is devoid of any of the large isolated spikes we’ve seen in the past – see March 2020 above, for example – so it appears to have calmed down. But aside from not offering bursts of brief movement, the past few years have still offered near-constant volatility, and not that different from what we’ve seen in years past.
“I was expecting a bit more correction regarding bitcoin volatility,said Max Coupland, director of CoinJournal. “There is a general belief in the space that bitcoin volatility is decreasing. But the CoinJournal research team had a hard time backing this up with numbers.
In fact, while bitcoin has undoubtedly become mainstream in the post-2015 period and has resulted in a rapid upward trend in its price, its trademark volatility remains as fierce as ever. Bitcoin, in the short term at least, remains more of a gamble”.
Bitcoin is still too volatile to be a store of value
Bitcoin is still yo-yoing like there is no tomorrow.
Perhaps the chart below is a more intuitive demonstration of this. The simple reality is that, if the asset is ever to act as a store of value, it is vital that these days where it moves 5%, 6%, 7% (or more) become a thing of the past. .
This has not happened till date.
The point is simple, but it bears repeating. An asset cannot claim to be a store of value (and certainly not a currency) while it is oscillating so wildly. People point to the world’s developing currencies as insecure to store their wealth (and they are right – looking at you Lebanon, Argentina and Venezuela), but bitcoin is still a currency that can jump 20 percent overnight. % can pit. Is it much better?
Volatility less severe over longer time periods
Like anything, bitcoin’s volatility diminishes a bit when assessing it on a larger time frame.
The next chart plots the average daily return over the last 30 days. There is again a noticeable decline in 2015, but not much improvement since.
Zooming in on the previous graph looking at the period after January 2020 (i.e. the post-pandemic bull market and the post-pandemic crash) shows that although the moves are not very large – they do not increase by more than 3% – they are still are also daily average, Means the average of profit and loss is taken. And yet, 3% on a daily basis is far more than it needs.
Bitcoin’s Volatility Can’t Compare to Mainstream Assets
When comparing bitcoin to anything other than other cryptocurrencies, the contrast is stark. If bitcoin is to be a mainstream asset, it possesses volatility unlike anything else. That, above all else, is the killer point.
An apt comparison is the Nasdaq, which is a more technical-heavy index and therefore prone to greater volatility. In the last few years, this has been especially true, as the world converges on rising interest rates and the stock market plays cat-and-mouse games with the Federal Reserve.
Tech is particularly sensitive to interest rates because profit is not a favorite word in Silicon Valley. Instead of profits, companies are usually driven off by the promise of future cash flows, with unicorns discounting the rough valuations on the back of these future cash flows at 0% rates. That’s no longer the case, and so we’ve seen stock prices plummet and a flood of layoffs across the sector.
Nonetheless, comparing Nasdaq volatility to bitcoin is like comparing a great white shark to a goldfish. This is not a fair fight.
Of course, the Nasdaq is an index consisting of 100 stocks, and so when I say that comparing volatility to bitcoin is not a fair fight, it is indeed the case.
But even if we plot the volatility of a few individual Nasdaq stocks against bitcoin, the divergence is clear.
In short, bitcoin has a long way to go. In my view, this has always been its biggest challenge: overcoming this volatility. If it is not, what is the importance of this property actually? You may not have a store of value if it is likely to drop significantly in value.
I’ll end with another comparison – how far bitcoin needs to go to illustrate how far it still has to go. To be a store of value, bitcoin’s volatility must be (at least) equal to that of major currencies.
The chart below compares its volatility since 2015 with that of the euro, the newest of the “major” currencies, launched nearly two decades ago.
The last weekly chart below shows it another way. In fact, on a weekly basis, bitcoin was 26 times more volatile than the euro in 2022. It was 19 times higher in 2021 and 16 times higher in 2020 – yet further evidence that volatility is not abating.
It is clear that bitcoin has a long way to go. This is accepted by most. But the idea that volatility is declining is a misconception, at least as of today.
For the future, who knows?
Research Methodology
We, along with our analyst Dan Ashmore, pulled price volatility measures from Glassnode, constructed the chart, and compared it to other assets. The stock price data was removed from Yahoo Finance.
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