Bitcoin is famous (or infamous) for its daily price jumps and falls, but lately the charts seem to be bordering on the comatose. So, has the cryptocurrency’s volatility really dropped or are we in business as usual?
We crunched the numbers to find out, and while things have been calm of late, it certainly hasn’t been a quiet 2018 for the world’s oldest and largest cryptocurrency. In fact, bitcoin (BTC) has witnessed daily volatility (or an inter-day trading range) above $1,000 as many as 43 times so far this year (using price data from CoinDesk’s Bitcoin Price Index).
That would seem a lot perhaps, but it’s not so simple. When we break down the data over time another pattern reveals itself.
The number of days in 2018 when the trading range was above $1,000 was highest in January, passing that level 21 times. Notably, that month saw the crypto markets rocked by regulatory talk in South Korea and China that caused jitters among traders and investors.
Moving on, the number of days the trading range was above $1,000 in February dropped by nearly half to 13.
Since then volatility has indeed plummeted, dropping to seven days in March and just two days in April.
So, what’s going on?
It’s worth noting that bitcoin’s price starting falling sharply from near record highs at the start of January amid the market angst over the Asian news.
Since volatility tends to spike during bear markets and drop during bullish price action, this pattern is something that could have been expected.
So, as the bearish atmosphere prevailed early in the year, the frequency of trading ranges above $1,000 was at its highest, while the subsequent bullish shift in the market has had the opposite effect.
For example, BTC rallied from $6,443 to $9,536 over the last 32 days. Meanwhile, during the same time period, the average daily volatility dropped to $454.
Further, the daily volatility stood at $278 yesterday – down almost 70 percent from the average daily volatility of $922 seen this year and below the 2017 average of $348 (predominantly a bull market).
What happens next?
An extended period of low volatility is often followed by a sharp rise in volatility (big move). The mean reversion theory also states that readings (volumes, price, returns) eventually move back toward the means (averages).
So, it looks safe to say the business is about to pick up.
Right now, the technical set up on the charts is bullish, so the big move, when it happens, will likely happen on the higher side. But, as always, there are no guarantees…
Yo-yo image via Shutterstock