Anyone who owns or is considering purchasing Bitcoin knows that the main cryptocurrency is extremely volatile. The sharp swings are a tiny price to pay for being a part of a juggernaut ready to conquer the world of global banking, according to devoted supporters. However, a detailed review of how wildly and crazily Bitcoin’s price swings— even within the same trading day— shows that it’s the world’s most volatile, risky, and completely unpredictable significant investment category.
Apart from outliers like Elon Musk of Tesla and Michael Saylor of MicroStrategy, those rapid-fire dives and ascents are a significant reason why business leaders show little interest in putting corporate wealth in Bitcoin. It also explains why nearly no retailers will accept payment in the currency of the future, according to its proponents. When it comes to Bitcoin’s alleged status as a coveted “store of value,” investors’ opinions on its value fluctuate so frequently that it’s difficult to know who to believe as a Bitcoin owner. Even if you believe Bitcoin will protect your purchasing power in the next few years– and it has been plummeting even as inflation rises– you’d need steel nerves to “HODL” when the ride is this bumpy.
Or perhaps not. Traditionally, investors have shied away from high volatility, even when the asset in question has a track record of providing large gains to compensate for the large swings. Even after a 50% drop from its high this year, Bitcoin has rewarded long-term investors handsomely. Bitcoin’s quick rises and falls provide a sense of glitz and glam to its devotees. Even so, the numbers are clear: For Bitcoin to thrive, its supporters will require the highest of boiling points, as well as a tolerance for witnessing large gains in the morning fade into heavy losses by afternoon, something that is rarely seen in financial markets.
From the beginning of 2021 through July 8, my colleague Scott DeCarlo calculated the daily “variance” in Bitcoin prices. The percentage swing from the low to the high for each day is the yardstick. He did the same thing with the S&P 500 and gold. Despite the fact that Bitcoin trades 24 hours a day, 365 days a year, our data shows the lows and highs for the usual 9:30 a.m. to 4:00 p.m. (Eastern time) trading day for U.S. equities. The use of trading days allows for a more accurate comparison of Bitcoin’s volatility to that of stocks.
The smallest difference between the high and low price in the 146 trading days so far this year was 2.5 percent, which occurred on April 1. Only four days in a row did the figure fall below 3.1 percent. Bitcoin’s price changed by at least 5% on 131 days, or 89 percent of the time, while it exceeded double digits on 39 days, or more than one in every four trading days. The journey from low to high took 17 days and covered 15 percent or more of the distance.
Between early January and mid-April, Bitcoin soared from $28,000 to over $64,000. That excursion, on the other hand, was the polar opposite of a smooth ascent. It zigzagged over 10% in the same trading day six times between January 8 and 15, falling from $39,700 to $37,300. It fluctuated by double digit percentages on seven days from January 20 to 29, swinging from a low of $28,000 to a high of $38,600, a 34 percent range. Despite this, its price rarely changed over the course of the period, commencing and ending at around $35,000.
Since mid-June, the trend has been consistent. Bitcoin has fluctuated between $41,300 and $28,800, a 43 percent swing in a month. Its daily range from high to low has averaged 8.4 percent over that time.
Over the last 146 days, Bitcoin’s average or “mean” variance has been 9.1 percent. The median low-to-high range was 7.6%. As a result, on a typical, unremarkable day, you may expect your Bitcoin to sell for 8% to 9% less at its low price than at its high price. That level of volatility is unheard of. Any other big asset’s spikes and dips would not fit on the chart.
Stocks frequently rise and lose value in rapid bursts, as we all know. Equities attract premium prices when compared to relatively stable Treasurys, for example, because of their abrupt ups and downs, even within the same day. Stocks, on the other hand, are a calm highland lake next to Bitcoin’s violent sea storm.
The highest daily variation on the S&P 500 since the start of 2021 is 3.3 percent, which occurred on March 5. That high point is tied for Bitcoin’s sixth most steady day. The S&P has only fluctuated by more than 2% six times in those 146 trading days. The difference between the peak and low has been less than 1% two-thirds of the time. Overall, the S&P had an arithmetic average variance of 1%, with a mean variance of 0.9 percent. To put it another way, Bitcoin was 8 times more volatile than large-cap equities.
Bitcoin supporters say that their currency outperforms gold as a “store of value.” Though it has outperformed the precious metal as a vehicle for speculation over time, it has lagged it by more than 50% since April.
On January 8, when gold was selling off hard, the highest daily movement between high and low was 4.9 percent. Investors dumped Treasurys in quest of cash after a bad employment report, pushing rates higher. Because gold competes with Treasurys as a safe haven, it has taken a knock. The next largest swing was 3.3 percent, while gold’s price only fluctuated more than 3% on three occasions. It only spent 14 days between 2.0 percent and 2.9 percent, and two-thirds of the time it fluctuated between under 1 percent and 2 percent. It never got close to a double-digit day, but Bitcoin did so over a hundred times.
Gold’s average and median variances were only 1.4 percent and 1.3 percent, respectively. This compares to Bitcoin’s 9.1 percent and 7.6 percent. On a typical day this year, Bitcoin has fluctuated at six times the rate of gold.
Bitcoin fluctuates far more than equities or gold because many people and funds are unsure what to make of it. It doesn’t generate income, is a highly volatile store of wealth, and has no practical applications. Its selling point: Bitcoin has been a wonderful investment for those who can overlook what often amounts to a one-day liftoff and crash. Its devotees are living recklessly, and for the time being, many of them are enjoying the ride. Investors have never embraced this level of “excitement” in the financial markets before. They might soon be debating how much excitement is too much.
Kiara Sofia Smith
My current focus is blockchain technology and cryptocurrency. One could even call me a blockchain “enthusiast.” I have worked for almost a decade on several financial projects related to the stock market news, fundamental research and technical analysis for several blogs.
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