Debunking the Myth of Bitcoin Volatility
There is a common misconception that Bitcoin is exceptionally volatile compared to other asset classes, but is this perception based on reality? To tackle this question head-on, we delved into Mieszko Mazur’s insightful study on “Misperceptions of Bitcoin Volatility,” published back in 2022.
The Journey of Bitcoin
From its humble beginnings as a whitepaper in 2008 to its current market capitalization of around $1.3 trillion, Bitcoin has come a long way. Despite being labeled as a volatile asset, it has gained popularity as a digital asset. The CFA Institute Research and Policy Center’s report on the “Valuation of Cryptoassets” sheds light on the tools available for valuing Bitcoin and other cryptocurrencies.
The narrative of Bitcoin’s volatility has been a focal point, with figures like Vanguard CEO Tim Buckley expressing skepticism about its inclusion in long-term portfolios due to its perceived volatility. But is this skepticism warranted?
Unveiling Mazur’s Insights
Mazur’s study during the tumultuous period of the March 2020 stock market crash aimed to analyze Bitcoin’s behavior and resilience in the face of market turbulence. By examining indicators like relative ranking of daily realized volatility, daily realized volatility, and range-based realized volatility, Mazur uncovered some interesting findings:
- Bitcoin’s return fluctuations were lower than numerous stocks in the S&P 1500 and S&P 500 during the market crash.
- There has been a noticeable decline in Bitcoin’s daily realized volatility over the past decade.
- Bitcoin’s range-based realized volatility exceeded the standard measure but was lower than many S&P 1500 constituents during the market crash.
Fast-forward to the present, we conducted our own analysis from late 2020 to early 2024 to validate Mazur’s conclusions. While Bitcoin’s relative volatility rankings fluctuated during subsequent market crises, its trend towards reduced volatility remained consistent over time.
Insights into Bitcoin’s Volatility Trends
Through a comparative analysis, we found that Bitcoin’s daily realized volatility rank hovered around the 76th percentile relative to the S&P 1500, showcasing a trend of declining volatility. Despite occasional spikes during market shocks, Bitcoin’s volatility remained moderate compared to other assets.
Furthermore, Bitcoin’s absolute daily realized volatility demonstrated a downward trajectory in recent years, with peaks well below the triple-digit annualized volatility thresholds seen earlier. The range-based volatility measure also highlighted Bitcoin’s lower extreme peaks compared to close-over-close realized volatility.
Dispelling the Volatility Myth
Our in-depth analysis reaffirms Mazur’s findings and challenges the perception of Bitcoin as intrinsically volatile. By objectively examining Bitcoin’s performance against various benchmarks, we reveal a nuanced picture of its volatility dynamics. As Bitcoin continues its journey towards mainstream acceptance and regulatory clarity, a holistic understanding of its volatility is essential.
It is imperative to approach discussions on Bitcoin’s volatility with a critical and open-minded perspective. As Mazur’s research underscores, perceptions often diverge from reality, and in the case of Bitcoin’s volatility, the truth may surprise many.