The volatility that made bitcoin so appealing is dwindling

• Bitcoin is much less volatile these days, according to DataTrek Research.
• Greater institutional interest in the cryptocurrency may be dampening its price moves. 
• Lower volatility may also be something that pushes retail traders back into stocks, analysts said.

The price of bitcoin is known to swing big and frequently.

For years many traders viewed that as a feature rather than a bug, as it could yield sizable and immediate gains similar to those seen during meme stock trading. 

But as of late, the cryptocurrency’s volatility has resembled that of a far more boring and conventional asset.

DataTrek Research cofounders Nicholas Colas and Jessica Rabe highlighted in a Monday note that bitcoin’s long-run volatility is more than triple that of the S&P 500, which typically sees about 1% daily price moves in either direction. Since September 2022, bitcoin’s volatility has been below its long-term average. Even the recent launch of spot ETF products hasn’t resulted in a meaningful spike in its price churn.

The chart below shows the token’s trailing 100-day standard deviation of daily returns dating back to 2015.

“The numbers here reflect how much [Bitcoin] typically moves in percentage points on any given day over these rolling windows,” Colas and Rabe said. “We have noted the average of 3.5 points with a dotted black line.”

Unique to bitcoin, however, is its history of regularly touching highs and lows during stretches of above-average volatility. For example, from December 2017 to March 2019 the asset hit a then-record high of $19,000 and also crashed to $8,000. Several other occasions in the last several years have brought similar swings.

Stocks, meanwhile, tend to touch lows during above-average volatility, but they reach new highs during times of low volatility, according to DataTrek.

The data show that bitcoin indeed has been more stable than usual over the last 18 months, despite still being more than twice as volatile as US large-cap stocks.

“Greater levels of institutional interest may be dampening [bitcoin’s] daily price moves,” Colas and Rabe said. “Simply put, [bitcoin] may finally be growing up. We have been waiting many years to see this development, and it may now be occurring.”

It’s possible a more stable bitcoin could entice investors to increase their asset allocation. 

It’s true too, though, that lower volatility could send some retail investors back into stocks, in the firm’s view.

“Over the last 3 years, many individuals started their trading and investing lives focused on virtual currencies like [bitcoin],” DataTrek’s cofounders said. “Now that volatility is lower than usual, they might shift capital into spicier single stocks where daily returns give them a chance at short term gains.”

Meanwhile, crypto investors have been bracing for the halving event, expected in April, which will cut the amount of bitcoin rewarded to miners in half. Some strategists have used halving to justify six-figure price forecasts, pointing to the token making new all-time highs in the 12 months following the prior three halving events. 

In 2024, bitcoin has climbed about 16.1% to hover at about $51,309. It’s up 118% in the last 12 months, and was trading at $51,935 on Monday morning.