Crypto Long & Short: What Trends in Volatility Could Mean for Bitcoin

Monday 29 June 2020, 6:03 PM AEST - 11 months ago

computer screen with graph

By this stage, pretty much everyone knows that bitcoins volatility is well above that of equity markets. This is still true, even after the ructions of March.

What is less well-known is that the balance of power when it comes to volatility is shifting. Market data indicates that bitcoin markets are becoming less volatile, and equity markets more so. This seems to be unrelated to the crash in markets earlier this year.

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Of course, its possible that this trend turns again. On the other hand, it could point to a broadening interest in bitcoin as an investment asset, as well as a new role for the cryptocurrency in portfolios.

First, bitcoins volatility is currently below its 2019 average. Not so for the equity markets.

volatilities-stackedSource: Coin Metrics, FactSet

(Note: We calculate volatility by annualizing 30-day standard deviations. This smooths variations while still reflecting short-term trends and, as of mid-April, removes the effects of the March crash.)

Over the past month, BTC volatility has continued trending down, while S&P volatility has levelled off.

volatilitiesSource: Coin Metrics, FactSet

This could be a short-term anomaly. Or it could mean that the standard expected S&P 500 volatility is now at higher levels than before, while bitcoins is lower.

The VIX index, which measures expected S&P 500 volatility using options prices, is currently almost three times higher than at the beginning of the year.

vix-2Source: FactSet

Second, this shift is supported by activity in traditional market volatility instruments. Earlier this m ...

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