Bitcoin is experiencing an unusual combination of rising prices and low volatility

Posted: 7 February 2020 6:12 pm

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Are regulated derivatives platforms doing their thing? Are the Bitcoin markets maturing?

The below chart, drawn with three different colours of crayon, shows Bitcoin prices (the verdant green of a lush field on a sunny day), Bitcoin's 24-hour volatility as reported by BitMEX (the rich orange of a brilliant sunset) and the total cryptocurrency market cap excluding Bitcoin (the sickly yellow of a jaundice-stricken emoji). It shows the start of the year up to now.

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BTCUSD chart by TradingView

The first thing you'll notice is that the colours perfectly complement each other, and the overall composition of the chart is balanced, easy on the eyes and just downright tasteful.

The second thing you'll see is that the cryptocurrency market cap minus Bitcoin has been doing considerably better than Bitcoin so far this year.

In other words, altcoins have tended to strongly outperform Bitcoin so far this year. The bulk of that altcoin spike on 13-14 January was probably Ethereum, because its market cap is just that hefty, and Bitcoin SV because its gains were just that big.

The word "alt season", as in "altcoin season", tends to get thrown around a lot whenever this happens, and it's usually taken with a grain of salt.

But in this case, Bitcoin's daily volatility provides an interesting counterpoint. We can see that it dropped off quite sharply following the altcoin surge, and has continued slipping since then. Does this reflect a shift of trading activity from Bitcoin to altcoins? Probably. It intuitively makes sense that active traders go where the volatility and price movements are.

But it's perhaps more interesting to marvel at the uncommon combination Bitcoin is experiencing right now: a prolonged price rise coupled with an extensive period of low volatility.

In fact, Bitcoin's volatility has been consistently trucking along at a very low level for a long time now. We can see that Bitcoin's 30-day volatility has been pretty consistently under 3% since last November, when volatility spiked upon Bitcoin's fall to $6,000, as China reiterated its crypto crackdown and the Binance office was raided by a crack squad of Schrödinger's police officers.

It's tough to call it a record just from eyeballing it, but we can safely say such a prolonged period of such low Bitcoin volatility is very unusual.

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The closest parallel to this period of low volatility is the second half of 2018, during which Bitcoin prices were just slowly deflating. But now prices have been consistently rising, with little in the way of mania.

What can we make of this?

One interpretation is that the markets are a bit more mature, and that the presence of more regulated derivatives markets is restraining Bitcoin prices a bit. One could also suggest that it's a result of Bitcoin's earlier exposure, and that there aren't as many new suckers people who have decided that Bitcoin is a reasonable addition to their portfolio these days. A more heartening take is that Bitcoin is coming into its own as a store of value.

Either way, it's kind of cool to see. Any deeper interpretation of these factoids is at the reader's discretion.

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Disclosure: The author holds BNB, BTC at the time of writing.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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