Is Bitcoin’s volatility making its importance again?

Volatility has been an important aspect of Bitcoin over the years. While many would invest in the digital asset because of the lure of volatility, many would use it as the sole reason to keep distance. During the year 2020, the volatility decreased relatively after March 2020. However, the scenario has been a little different in the last few months; or should we say similar, what the ecosystem is used to?

Has Bitcoin become volatile again?


Source: buybitcoinworldwide

The chart above illustrates the reduction in Bitcoin’s volatility between March 15 and November 1, 2020, as the standard deviation of daily returns fell from 10% to just under 2% in November.


Source: Trading View

During the same time period, Bitcoin rose from $ 4,435 to $ 15,968, an increase of 259%. Subsequently, BTC volatility returned and started showing an increase as daily returns were around 5.61% on February 19. Interestingly, Bitcoin rose 288% over the same period, November at press time.

The impact of volatility during the crucial rally period is evident in the charts, indicating that the current bull run strongly mirrors the 2017 bull run. However, the volatility seen during the 2019 surge is still unmatched in terms of intensity.

Volatility Rises Stock, Gold Correlation

Bitcoin’s rising volatility has also led to little change in the overall traditional market, as its recent decorrelation factor with gold and the S&P 500 has increased in the charts. According to the chart below, the realized volatility spread Bitcoin-S&P 500 has increased rapidly in recent months.

Source: bias

As explained, the Bitcoin-S&P 500 correlation also increased over the same time period, with the correlation with SPX dropping from -34% on December 24, 2020 to 32% on February 19. Still, Bitcoin is up 98% year-to-date from SPX’s meager 4% spike.

The importance of volatility is once again underlined. It can be inferred that in the future it could play a key role in the macroeconomic relationship between Bitcoin and other assets. While Bitcoin is expected to diverge from the traditional asset class, the current surge only aligns its movement with its counterparts.

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