The digital currency market has been known for its rollercoaster-like price swings, with Bitcoin (BTC) and Ethereum (ETH) leading the pack. However, a new study by Kaiko indicates that these two cryptos have experienced a surprising reduction in their volatility, tipping below the levels of oil.
Historically, due to reasons ranging from government stance to broader economic conditions, BTC and ETH have been more volatility-prone than oil and several other assets. Yet, in a rather unusual turn of events, these cryptos have seen their 90-day volatility index drop to 35% (BTC) and 37% (ETH), compared to the global oil price’s 90-day volatility index standing at 41%.
One might recall how last year, amid a period of instability for the entire crypto ecosystem, BTC and ETH lost more than half of their market values. However, this year presents a different plot, with BTC increasing by a whopping 80% YTD, marking a notable surge in volatility.
Interestingly, despite outpacing cryptos, gold, and Nasdaq on the volatility index, oil’s percentage has reduced from 63% in July 2022. These shifts reveal to us the nature of market volatility, which essentially signifies the frequency or extent of price fluctuation for an asset over a certain period. Undeniably, the higher the volatility, the greater the risk posed to investors due to rapid price changes.
Speaking of influences on volatility, several global developments such as Russia’s attack on Ukraine leading to widespread sanctions and China’s difficulties in reviving its economy post-pandemic are cited as factors. Dessialava Ianeva, a lead analyst at Kaiko, also notes that Bitcoin’s maturing asset attributes have contributed to its decreased volatility. As the crypto market grows and becomes more adopted, it logically becomes less volatile in comparison to its early days.
Moreover, liquidity, or the lack thereof, is another important factor affecting crypto volatility. Over recent months, major crypto assets like BTC and ETH have been hitting the lows in trading volumes and liquidity. This could be owing to the increasing regulatory scrutiny of the crypto markets in the U.S, resulting in investors second-guessing the Securities and Exchange Commission’s direction in approving a spot BTC ETF.
However, the potential approval of a spot ETF, while possibly a few months away, could very well reverse the current dynamics. This approval could gear up the price of BTC and the overall market capitalization to unprecedented heights. In essence, the crypto market’s future could hold more stability and less risk than most have come to expect.