Bitcoin Volatility Plummets to 14-Month Low

A closely-watched gauge of bitcoin’s monthly volatility has fallen to its lowest level in over a year, a sign the world’s leading cryptocurrency is entering a period of relative calm.

Bitcoin Volatility

Bitcoin’s month-on-month volatility has not only decreased from its December peak, it has fallen to its lowest level since May 2017, according to Diar, a weekly institutional publication on digital assets.

In its Volume 2 Issue 33 & 34 report, Diar said bitcoin price volatility is “setting an actual trend downwards for the first time.” Interestingly, the decline in volatility was associated with the launch of bitcoin futures back in December – something former CME Chairman Leo Melamed predicted.

“We will regulate, make bitcoin not wild, nor wilder. We’ll tame it into a regular type instrument of trade with rules,” Melamed predicted at the time, according to Diar.

Month-on-month volatility declined to 3% in July from 8% in December. However, given that bitcoin futures account for a mere 2% against spot trading, it’s too premature to conclude that derivatives played a directional role in volatility.

Source: Diar

Although bitcoin is exhibiting less volatility, liquidity constraints continue to strangle the market. Fund issuers, including some backed by CBOE, have attempted to solve this issue by launching a bitcoin exchange-traded fund. However, each application submitted to the SEC has either been rejected or had its ruling delayed.

Below is a breakdown of a recent string of bitcoin ETF applications, including their final deadlines.

Source: Diar

Opposing Views

Bitcoin futures are often blamed for increased volatility because they allow traders to easily short digital currency – a practice that was virtually impossible before the derivatives contracts were introduced in December. This was one of the main arguments put forward by the San Francisco Federal Reserve in a report that linked bitcoin futures to the market’s subsequent collapse.

According to the San Francisco Fed’s report:

“The peak price coincided with the introduction of bitcoin futures trading on the Chicago Mercantile Exchange. The rapid run-up and subsequent fall in the price after the introduction of futures does not appear to be a coincidence. Rather, it is consistent with trading behavior that typically accompanies the introduction of futures markets for an asset.”

Bitcoin is exerting a bigger gravitational pull on other cryptocurrencies after its share of the total market returned above 50% for the first time since December. Bitcoin’s price swings have also been less volatile than its peers, a sign that investors were diverting funds away from more speculative altcoins and tokens.

At the time of writing, a single bitcoin was valued at $6,440 on Bitfinex.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Chief Editor to and Contributor to, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi