- Bitcoin‘s overall price volatility has fallen sharply to about 46% this year from 84% in 2018, but unusually large 3-sigma swings have become more frequent, rising to 10 instances from eight.
- Experts said routine volatility has declined as institutional investors and exchange-traded funds (ETFs) entered the market and liquidity expanded, but macroeconomic shocks and crowded derivatives market positioning are still driving sudden sharp moves.
- Luke Strijers warned that if investors increase their portfolio exposure on the assumption that normal volatility is low while relying on option-selling strategies and traditional value-at-risk (VaR) metrics, abrupt price swings could hit portfolios even harder.
Forecast Trend Report by Period
Bitcoin’s overall price volatility has fallen sharply from past years, but unusually large swings are occurring more often.
CoinDesk reported on October 10 that Bitcoin has recorded 10 so-called 3-sigma moves this year, defined as price swings that exceeded three times its 30-day volatility. That is more than the eight such episodes recorded in 2018.
CoinDesk described a 3-sigma move as an unusual level of volatility that de
Bitcoin’s broader volatility, however, has dropped substantially from past levels. An analysis of its price trend this year showed volatility at about 46%, down 38 percentage points from 84% in 2018.
Experts say day-to-day volatility has eased as institutional
Experts say day-to-day volatility has eased as institutional investors entered the market and liquidity expanded. But macroeconomic shocks and crowded positioning in derivatives markets are still triggering sudden jumps and drops.
Nicolae Ciutravo, Paradigm’s head of Europe, the Middle East and Africa, said the market has become more stable under normal conditions as institutional investors and exchange-traded funds have come in and liquidity has increased. Shocks tied to macro conditions, leverage and investor positioning, however, have not disappeared.
Some analysts also say investors’ efforts to generate returns by selling options during periods of low volatility can amplify abrupt price moves.
Luke Strijers, chief executive officer of Deribit, said traditional value-at-risk, or VaR, metrics do not adequately capture the risk of extreme losses. If investors increase portfolio exposure simply because volatility appears low in normal periods, sudden price swings could deliver a bigger blow to their portfolios, he added.
