Bitcoin’s Volatility: Perception vs. Reality
In the realm of finance, perception often clashes with reality. When it comes to Bitcoin, this dissonance is particularly pronounced. The common belief that Bitcoin is excessively volatile compared to other asset classes could be misleading. To challenge this notion, we delved into Mieszko Mazur’s research on “Misperceptions of Bitcoin Volatility” and unearthed noteworthy insights that advocate for a more nuanced understanding of Bitcoin’s price behavior.
The Genesis of Bitcoin
Bitcoin emerged from obscurity in 2008 to become a juggernaut in the digital asset space, amassing a market capitalization of approximately $1.3 trillion by mid-2024. Its evolution from a niche concept to a global phenomenon has piqued the interest of investment professionals seeking to uncover its intrinsic value. While Bitcoin’s volatile nature has been a dominant narrative, it is pertinent to examine the empirical evidence before drawing conclusions.
Mazur’s Revelations
Mazur’s study honed in on the period surrounding the March 2020 stock market crash induced by the COVID-19 pandemic to ascertain Bitcoin’s resilience and price dynamics during tumultuous times. By scrutinizing various volatility indicators, Mazur highlighted intriguing findings that shed light on Bitcoin’s comparative stability:
Relative Ranking of Daily Realized Volatility
- Bitcoin exhibited lower return fluctuations than hundreds of stocks in the S&P 1500 and S&P 500 during market upheavals.
- Surprisingly, Bitcoin proved to be less volatile than assets like oil, EU carbon credits, and specific bonds during the market crash phase.
Daily Realized Volatility
- There has been a notable dip in Bitcoin’s daily realized volatility over the last decade.
Range-Based Realized Volatility
- Bitcoin’s range-based volatility surpassed the conventional measure, albeit lower than a multitude of S&P 1500 constituents during market turmoil.
Our Methodology and Insights
To validate Mazur’s findings, we analyzed data spanning late 2020 to early 2024, utilizing different sources while adhering to standardized percentile rankings for clarity. Our exploration reiterated some of Mazur’s observations while unraveling new nuances:
Relative Daily Realized Volatility: A Fresh Perspective
- Bitcoin’s relative daily realized volatility rank hovered around the 80th percentile compared to the S&P 1500 constituents from 2020 to 2024.
- During subsequent market crises, Bitcoin’s volatility rankings exhibited fluctuations, with occasional dips below the median S&P 1500 stock.
Absolute Daily Realized Volatility: A Novel Outlook
- Bitcoin’s volatility portrayed a downward trend over the years, experiencing lower spikes following turbulent episodes.
Range-Based Realized Volatility: A Different Lens
- The disparity between Bitcoin’s range-based and daily realized volatility underscores the misconceptions surrounding its perceived volatility.
Closing Thoughts
Our updated analysis of Mazur’s research elucidates Bitcoin’s nuanced volatility profile, challenging the prevailing notion of its extreme unpredictability. As regulatory frameworks evolve alongside growing mainstream acceptance of Bitcoin, it is imperative to approach discussions on Bitcoin’s volatility with analytical rigor and an open mind. In the ever-evolving landscape of digital finance, perceptions may not always align with reality, beckoning for a more nuanced approach to understanding Bitcoin’s price dynamics.
