Bitcoin’s Volatility May Surprise You
Bitcoin is one of this year's best-performing assets, but many market participants still view it as a complicated, volatile instrument.
However, it may not be as volatile as many investors are led to believe, and that turbulence could wane as the cryptocurrency market expands.
“Historically, bitcoin has been discussed in the news and among investors as a nascent and volatile asset outside of the traditional stock and capital markets,” writes Gabor Gurbacs, VanEck director of digital asset strategy. “Much of the volatility over the past few years can be attributed to sensitivity to small total market size, regulatory hurdles and generally limited penetration in mainstream stock and capital markets.”
Bitcoin's Bounciness: Not So Bad?
Bitcoin’s price action is undoubtedly impressive this year, but there’s more to the story with the largest digital currency. Investors considering exposure to the asset should educate themselves on Bitcoin mechanics.
Bitcoin has sometimes been referred to as “digital gold” with supporters suggesting it could be a good safe-haven investment.
Gurbacs research indicates that over the past 90 days, 112 S&P 500 companies are more volatile than Bitcoin, with that number rising to 145 on a year-to-date basis.
Bitcoin’s historical volatility trends, which have ebbed somewhat, have often prevented some market observers from calling the digital asset a safe-haven on par with gold. The coronavirus headlines could be prompting some investors to revisit that thesis. There’s no denying there are some exponential growth estimates associated with Bitcoin. Plus, the digital asset is all the more relevant today with the world awash in low and negative interest rates.
“In our long-term study of bitcoin, we had compared bitcoin correlations to traditional asset classes and now see another interesting recent trend with its volatility,” according to Gurbacs. “In our current volatility research, we compared the 90 day and year to date volatility—as measured by their daily standard deviation as of November 13, 2020—of bitcoin against the constituents of the S&P 500 Index. We found that bitcoin has exhibited lower volatility than 112 stocks of the S&P 500 in a 90 day period and 145 stocks YTD.”
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