Breaking out of its usual zig-zag trajectory, Bitcoin volatility retreated to its lowest point in more than a year.
Bitcoin (BTC) has bugged financial regulators around the world partly because of the wild swings in its price. Some good news has now come from Bitvol, whose volatility index shows surprising stability over the last 30 days. During that period, Bitcoin’s price experienced a variation of 1.71% compared to its usual range of between 3% and 7%.
What is volatility and why does it matter?
Volatility is a measure of how much the price of an asset varies over time. Volatility refers to the amount of uncertainty or risk about the size of changes in a financial asset's value. A higher volatility means that the price of the asset can change dramatically over a short time period in either direction. A lower volatility means that a financial asset's value does not fluctuate dramatically, but changes in value at a steady pace over a period of time. If Bitcoin volatility decreases, the cost of converting into and out of Bitcoin will decrease as well.
Suggesting possible explanations for this development, financial expert Bob Mason wrote in a Sunday piece for FX Empire:
“The volatility would have been one concern for the SEC [with regards to ETF approvals], while price manipulation and fraudulent activity remain the key concerns. The low volatility is also a statement that price manipulation has perhaps abated. Anomalies occur and will likely continue, the recent short sell ahead of the Goldman Sachs announcement to hit pause on its cryptocurrency trading desk still a lingering reminder of Bitcoin’s somewhat shady past.”
Some could argue Bitcoin’s recent serenity is a statistical abstraction, but the cryptocurrency is not a stranger to such less turbulent periods. The 60-day volatility index shows 2.43%, a figure previously recorded in March 2017. Moreover, in the same of 2016, Bitcoin’s volatility was hovering just above 1% in both the 30-day and 60-day indexes, casting doubt that the slowdowns in price movement can be attributed to a reduction in price manipulation.
According to data from Coinmarketcap, Bitcoin’s 24-hour volumes have gone from “dwindling” towards the end of October 3 to “stagnant” just two days ago.
Although a reduction in price manipulation may very well be the reason for Bitcoin’s moment in the sun, this is more likely a period of trader enthusiasm hitting a low point.
Bitcoin has a history of seeing low volatility for a week or two every few months, so a dramatic price swing is very likely in store for the near future. Should that happen, it would once again affirm the narrative that volatility is the status quo for cryptocurrencies, at least for now.
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