- Bitcoin’s volatility is a massive problem, writes our head of research, Dan Ashmore
- The volatility is the lowest since January, but that doesn’t provide much solace with regards to Bitcoin’s actual utility
- For Bitcoin to deliver on its potential, it needs to become boring, with volatility closer to gold’s famously steady return profile
It’s relatively calm in Bitcoin markets right now, but that won’t last long. And it’s a massive, problem.
First, let us look at the short-term volatility, because I noticed over the last few days that is has come down a little. Plotting the 1-month volatility on an annualised basis, we are at the lowest mark since January, when this little Bitcoin surge was kicked off.
But don’t confuse that with a steady market. The crypto markets remain highly capricious and capable of swinging back and forth and eye-watering speed. Volatility is still close to 50%, which in the context of any regular market, is truly insane.
Perhaps plotting the daily returns of Bitcoin against that of Tesla shows this better. Tesla is just about the most extreme member of the S&P 500, its stock price more volatile than its CEO’s Twitter feed. Comparing your volatility to Tesla is like comparing your ability to run a football team to Todd Boehly (seriously, wtf).
And yet, Bitcoin’s daily price changes not only match Tesla, but commonly exceed it.
Indeed, if we plot Bitcoin’s volatility back over a longer time period, we see that these fallow periods do occur, but rarely last long. Bitcoin and volatility are like Frank Lampard and Chelsea, apparently – occasionally apart, but you know that before long, they will be back. And they are terrible for each other.
Make no mistake about it, volatility is one of Bitcoin’s greatest drawbacks. It is difficult to imagine the asset ever achieving anything remotely close to a store-of-value status while it oscillates back and forth like it does.
If the ultimate vision for Bitcoin is some sort of digital gold, it has a hell of a long way to go. Flipping the earlier comparison from Tesla to gold is more apt, and puts the chasm between the two assets up in lights:
Obviously, this could all change in the future. I don’t have a crystal ball. Regarding Bitcoin’s ultimate vision, it simply has to, because as it currently stands,…
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