Why Bitcoins Volatility Is a Feature, Not a Bug

The second has incredibly high volatility but is believed to possess the ability to store value. The second asset class would be the correct choice for the investor because it is the one that has the better chance of fulfilling the investment objective of preserving value over the specified time horizon. Volatility, despite being undesired, is not part of the objective and does not matter over the 10 years. What matters is whether the objective has been achieved at the end of the ten years, https://www.xcritical.com/ not necessarily achieved at all times throughout the 10-year time period.

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The Securities and Exchange Commission, recently told a House committee there are gaps in the system. He pointed out that there’s a need for legislation to specify which regulator should oversee crypto exchanges. Gensler mentioned that the SEC “taken and will continue to take our authorities as far as they go.” But cryptocurrencies are naturally freewheeling assets that aren’t directly governed by international borders or certain central agencies within a government. This presents a problem for policymakers who are accustomed to dealing with clear-cut definitions for crypto volatility trading assets.

Trader ‘first’ in UK charged with operating crypto ATM

— Trendlines are diagonal lines drawn by connecting a series of price points. An upward trendline connects higher lows and acts as a support level, while a downward trendline connects lower highs and acts as a resistance level. As gold went through a major price discovery process in the 70’s, which then resulted in amassing a larger base of investors, volatility naturally declined. We believe bitcoin could go through the same process, and in fact the limited historical evidence we do have so far appears to be showing volatility declining over the long-term. As can be seen below, gold did not get to this established asset class in a consistent, easy to predict, or low volatile manner.

Bitcoin: Why is the largest cryptocurrency crashing?

The point is that something that has low volatility is not necessarily a good store of value in the long run, while something that has high volatility does not mean that it can’t be a good store of value in the long run. As noted above, early 2024 has shown to be a unique period of low volatility coinciding with all-time highs in price. When looking at this pattern, the glaring absence of the 2020–2021 period cannot be understated. Global events like the COVID-19 pandemic can vastly change the trajectory of any market, bitcoin included. In traditional finance, volatility is synonymous with “risk.” Therefore, higher volatility corresponds to higher actual or perceived risk.

The $74,000 Resistance Level in Early 2024

Bitcoin is trading at a 20% discount, at a time when the full impact of the halving has likely not yet occurred. This event, which results in the rewards paid out to Bitcoin miners being cut in half, has a number of follow-on consequences that make Bitcoin much more attractive for investors. And it also has a disinflationary impact over the long haul, making Bitcoin more attractive to investors looking for a long-term store of value.

Stablecoin collapse sends crypto tokens tumbling

• In recent months, MVRV has declined due to realized value remaining relatively stable while the market price of bitcoin has declined.
• Miners won’t continue to mine if the value of the currency they’re mining isn’t high enough to cover their costs.
• Ensure that the levels are drawn on higher time frames (daily, weekly) for more significant levels.
• Once people consider the coin overvalued and lose money on it, the hype and speculation die and eventually lead to a price collapse as the bubble bursts.
• On September 5, Bitcoin dropped into a critical range between $56,600 and $52,500, reminiscent of its volatile August 5 performance when it hit $49,000 twice in one day.

In a nutshell – in order to stabilise it, people who still have Bitcoin would need to hold on to it and others would need to start buying it again. Recession looms, inflation is soaring, interest rates are rising and living costs are biting. Stock markets are wobbling too, with the US S&P 500 now in a bear market (down 20% from its recent high). I’m going to concentrate on Bitcoin here – but if you’re a crypto follower, you’ll know the whole market is troubled, to put it mildly. But write about it we must, because the past 24 hours have been catastrophic for the grande dame of cryptocurrency – even by Bitcoin standards. The story of the world’s best known cryptocurrency is astonishingly fast-moving and its fans will soon line up to tell you you’ve got it all wrong.

Historically Low Volatility Has Been a Precursor to a Price Increase

Recent restrictions imposed by China contributed to a period of severe volatility in bitcoin prices. We’ve already seen the power of sentiment create much volatility across traditional stock markets in 2021. The GameStop (GME) short squeeze in January was caused by a collection of retail investors coordinating themselves via social media to collectively buy a specific stock to boost its price.

Crafting a Model and Narrative to Understand Bitcoin’s Volatility Regimes

The difference between bitcoin and companies like Tesla and NVIDIA has become minimal. Bitcoin’s average annual volatility is only 1.09 times higher than Tesla’s (32.54%) and 1.17 times higher than NVIDIA’s (30.42%). And because the supply changes balance out demand changes, this leads to the greater bitcoin price volatility, compared to most other goods and commodities.

Bitcoin’s 10-Year Volatility Far Exceeds Traditional Assets

While resistance and support levels are powerful tools, they should be used in conjunction with other technical indicators and market analysis to maximise their effectiveness. Understanding these levels helps traders set stop-loss orders and limit orders as more effective risk management tools, minimising potential losses. Additionally, resistance and support levels reflect the collective behaviour and sentiment of market participants, offering a glimpse into the psychology driving the market. To understand the volatility of cryptocurrencies, it’s important to understand how their supply changes as more people buy them and as the mining process continues to produce new coins. When more people want to buy Bitcoin or Ethereum, those coins increase in value because demand has increased.

Bitcoin also just reached a full year of weekly volatility below 75% for the first time ever. There is a clear downward trend in volatility for bitcoin over its lifetime and we believe this trend will continue as bitcoin continues to mature over time. This was then exacerbated by an influx of new liquidity into the market, resulting in a sharp rise in price. Unforeseen events like these can happen at any time and disrupt the entire market.

As recorded by the Bitcoin Volatility Index – a metric that monitors how far bitcoin deviates from its mean price – some degree of volatility has followed bitcoin since its inception. This is calculated using standard deviation, which is calculated as the square root of variance by determining each data point’s deviation relative to the mean. The most recent data reveals that bitcoin’s volatility has dipped below that of Intel, Tesla, and NVIDIA over the past few months. While this short timeframe doesn’t warrant sweeping conclusions, it certainly requires close attention to how this trend will develop in the coming months. Bitcoin, made publicly available in 2009, began its rise to popularity around 2010 when the price for one token rose from fractions of a dollar to $0.09. Since then, its price has increased by tens of thousands of dollars—sometimes rising or falling by thousands within one day.

The number held by institutions and large investors will likely keep rising as long as belief in the cryptocurrency’s staying power and profitability remains strong. Understanding resistance and support levels is essential for anyone involved in Bitcoin trading. These levels provide valuable insights into market behaviour, helping traders identify potential entry and exit points, manage risk, and make more informed decisions.

The world demand for crude oil has been almost always increasing, only declining for brief periods during recessions. However, the long-term price has not shown a similar pattern of only ever increasing. In fact, the inflation adjusted price of a barrel of WTI crude oil has actually declined nearly 9% over the past 15 years while demand is up approximately 14% (using prices as of the end of 2021 according to Bloomberg data). While only wrapped ETH was affected in this hack, similar vulnerabilities could exist on other blockchain networks that use this same cross-chain structure.

At the time of writing, the global crypto market cap is $1.2 Trillion, a -39% change from 2021. Bitcoin’s one-year realized volatility becomes particularly noteworthy when it reaches new all-time lows. These low volatility environments can become the foundation for future upward moves in price. Circled below are four instances of realized volatility hitting a new all-time low.

Moreover, February 2024 saw bitcoin cross above $60,000 with a much lower realized volatility than has been seen previously. Even if bitcoin is a better hard money overall (which my analysis indicates), it may take decades for other investors to reach the same conclusion and position their portfolios accordingly. Although bitcoin is more than 12 years old, it’s still early days in this competition for hard-money market share. There’s no shortage of headlines behind the wild fluctuations in bitcoin prices. Stories such as the bankruptcies of crypto exchanges Mt. Gox in 2014 and Yapian Youbit in 2017 shook investors. The well-documented use of bitcoin in drug transactions via Silk Road resulted in an FBI shutdown of the marketplace back in October 2013.

It appears that during these times, investors are either apathetic towards price, demoralized by the price action, or in some cases have sold and left the bitcoin market altogether. Bitcoin prices are volatile for many of the same reasons other investments are—supply and demand and how investors react to hype, news, and regulatory actions. The main difference between bitcoin and other investment prices is the magnitude in which its price changes. It isn’t uncommon for Bitcoin to have a $2,500 difference between its high and low price for one day—the most volatile stocks see price ranges measured in tens of dollars. Most of Bitcoin’s price volatility comes from investor fears of missing out on big price movements.

The founder and chairman of famous Microstrategy, Michael Saylor was invited by CNBC on September 9 for a discussion on Bitcoin. When he was questioned about his opinion on the profits generated by Bitcoin he did not hold back and clearly shared the profits his company is making with BTC. He said that since August 2020, Microstrategy has bought about $8.3 Billion worth of Bitcoin. Data from IntoTheBlock shows that most Bitcoin investors are currently in profit, with 79% having bought BTC below $56,960. Conversely, 13% are still at a loss, and 8% purchased at the current price.

We want our readers to share their views and exchange ideas and facts in a safe space. In the last 24 hours, around 39,647 trades were liquidated, totaling $128.42 million. Notably, while long trades dominated liquidations two days ago, the recent data shows short trades were liquidated, suggesting a bullish signal.