Bitcoin Volatility makes investors’ blood run cold

Bitcoin Volatility is an important indicator for risk analysis in financial markets.

It is applied not only to traditional segments of the financial industry but also to the world of virtual currencies. The market remains under pressure from fundamental factors, which include Elon Musk’s statements regarding cryptocurrency. The market is nervous and unstable; any new negative information can cause investors to fix their positions and the prices of digital assets to fall.

Records and Musk

Bitcoin, on which the value of most other cryptocurrencies depends, broke another “anti-record.” The currency fell 13% to $33,052 per coin. This is below its 200-day swing average. By comparison, on April 14th this year, Bitcoin was worth $64,895.22. Ethereum and Dogecoin also fell in price, as claimed by CoinGecko.com. With cryptocurrency markets trading around the clock, we should expect more changes of Bitcoin volatility.

Tesla Inc. CEO and well-known infomercial generator Elon Musk said he supports cryptocurrencies in their fight against traditional money. He caused strong fluctuations in bitcoin markets, and the cryptocurrency rose almost 9% to reach $38,000.

A comparison of bitcoin’s volatility with the CBOE Volatility Index (VIX) is above 130, higher than the 30-year stock version. The VIX expresses the expected range of fluctuation of the US S&P 500 stock index. A higher volatility means that an asset is too risky to own ­ on any given day, its value could rise or fall significantly.

During 30 days, Bitcoin showed volatility of 100. That’s almost eight times higher than the Standard & Poors 500 and above lumber futures and the Exchange Traded Fund, which is supposed to cover twice the daily return of crude oil.

Bitcoin price changes have fluctuated remarkably this week. The ups and downs are 30% on Wednesday, with the price falling to 30,016, the lowest price since January 2021.

However, the Bitcoin is still 250% more expensive than last year.

 

Bitcoin Volatility

Swings

The swing started right after tweets by Elon Musk regarding his decision to stop accepting Bitcoins as payment for Tesla cars due to the high energy costs involved in producing this coin.

Chinese authorities have decided to ban banks and payment companies from offering services related to cryptocurrency transactions to achieve better control over financial tokens in the country.

According to senior market analyst Edward Moya, environmental, social, and corporate governance in China plays an important role in reducing the value of Bitcoin.

Bitcoin continues ultimate volatility over the weekend.

For a brief period on Sunday, Ethereum was trading below $1,900, and “meme” Dogecoin fell nearly 17%, as reported by Coinmarketcap.com. This shows the correlation between the value of Bitcoin and other major currencies.

Earlier this week, the People’s Bank of China banned financial institutions from accepting payments with cryptocurrencies.

China’s government has long wanted to achieve deep control over cryptocurrencies. The Chinese produce a large number of cryptocurrencies and use enormous computing power for blockchain operations.

According to the report by macro strategist Marion Laboure of Deutsche Bank, governments wanted more and more regulation and a monopoly over monetary policy, and while cryptocurrencies were trying to replace regular currencies, regulators and politicians would try to prevent this.

“Big risks”

Chainalysis, a software firm that helps people engage with the cryptocurrency Bitcoin with confidence, has found that almost 60% of the $410 billion spent on current Bitcoin holdings appeared in the last 12-month period.

A quarter of the amount was paid for bitcoins with the price of $36,000 per coin. Therefore, coin trades are only profitable for these investors at $36,000 or higher.

Chainalysis chief economist Philip Gradwell expressed a similar thought. According to him, “the stakes are much higher now,” and the situation is a serious test for new investors because the current problems with Bitcoin “prevent it from becoming a mature asset.”

Another peculiarity is that crypto markets trade 24/7. Traditional markets do not. Therefore, the volatility of traditional assets compared to crypto assets is calculated based on fewer data points. The average volatility for Bitcoin on weekends this year is 5.14%.

The high volatility is often an argument against cryptocurrencies for regulators and critics.  For cryptocurrencies, as for traditional financial investments, the logic of cyclical fluctuations applies. This is particularly noticeable over a long period.

The disadvantage is that cryptocurrency platforms use their own standards, and there is no centralized market as with traditional financial investments.

A relatively small number of investors own Bitcoin coins; therefore, price assessments can fluctuate more profound.

Cryptocurrencies remain a risky asset, promising but with an uncertain status. While the industry used to be fueled by positive news and increased attention, these factors no longer have the same power.

The main purveyors of news are now regulators and professional market participants. Chief Investment Officer of Equity at Penn Capital Eric Green admitted that swings occur because of the prevalence of speculation. These can be perceived as negative by investors.

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