This surprising stat suggests that bitcoin may be a buy right now


Bitcoin (BTC 4.03%) it has been locked in a relatively tight trading range between $16,000 and $18,000 for months, making the cryptocurrency less volatile than it was a while ago. In fact, Bitcoin’s 30-day volatility is down to June 2020 levels. During a five-day period in early January, Bitcoin was actually less volatile than gold, the NASDAQ and the S&P 500.

So what’s going on here? This statistic may signal a long-term trend of Bitcoin becoming less volatile over time as it becomes a major risk asset held by both retail and institutional investors. Or it could be the calm before the storm before bitcoin explodes in value.

Why is Bitcoin volatility important?

Volatility is just a statistical measure of how much Bitcoin’s value fluctuates up and down over time. The higher the volatility, the higher the potential fluctuation. This is true for both the positive and the negative side. Thus, Bitcoin’s relatively high historical volatility means that it is capable of higher and lower swings than other assets. In many ways, volatility is key to understanding what makes Bitcoin unique as an asset.

Image source: Getty Images.

When there is a significant change in these statistics, investors pay attention. When Bitcoin’s volatility decreases, it starts to behave more like a risky tech stock on the NASDAQ. As Bitcoin’s volatility drops further, it begins to behave more and more like a stock you’d find in the S&P 500. So you can think of volatility as a proxy for risk. The higher the volatility, the riskier the investment appears.

So you can see why investors pay attention to this statistic. It’s kind of odd that Bitcoin’s volatility has fallen below gold, the NASDAQ, and the S&P 500 at the same time. Analysts call this rare event “relative volatility compression,” and it rarely happens. But when this happens, it usually signals a major breakout for Bitcoin.

Bullish signal for Bitcoin

So I think this calm before the storm could actually be an important signal for the coming Bitcoin bull market rally. Relative volatility compression has occurred only five times in the past, and usually for a day or two. So, the longer this anomaly persists, the stronger the signal can be.

According to traders, there were similar signs at the bottom of the 2018 bear market and before the start of the 2020 bull market rally. So if historical precedent is to be believed, a period of ultra-low volatility could be a signal for an explosive rally to the upside. Intuitively, this makes sense. Bitcoin has been trapped in such a narrow trading range for so long that it could be massive when it breaks out.

Down signal for Bitcoin

Of course, some traders interpret this calm before the storm in the opposite sense. In late November, the European Central Bank described Bitcoin’s price stabilization as “an artificially generated last gasp of the crypto-asset before heading down the path to irrelevance.” From his perspective, all it takes is one bad macroeconomic number and Bitcoin is headed for zero. This is the mantra of all the Bitcoin ultra-bears who are convinced that Bitcoin is headed for irrelevance. During the winter holidays, notable Bitcoin ultra-bear Peter Schiff even gave investors a so-called “Christmas present” urging them to sell their Bitcoins before it’s too late.

Fasten your seat belts

While traders can’t agree on whether low volatility is positive or negative for Bitcoin, everyone agrees that something is up. Since October, when Bitcoin’s volatility hit a two-year low, there have been more stories in the mainstream financial media about Bitcoin’s surprisingly low volatility. After all, the fact that Bitcoin is less volatile than the S&P 500 is newsworthy. Traders interviewed for these stories typically describe the current Bitcoin trading environment as “boring” because nothing is happening.

But I don’t think Bitcoin is boring right now. In fact, quite the opposite. I think a big move is imminent and I wonder what this means for the future price of Bitcoin.



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