If anyone was asked a couple of months back, the reason why Bitcoin cannot replace fiat currencies, it would definitely be linked to its volatility. But this case seems to be changing as over past 5 weeks bitcoin has remained stable around USD 6500, a behavior similar to a matured fiat currency.
Volatility dries as Bitcoin matures and consolidates
Bitcoin stability has taken everyone by surprise in the cryosphere. Not only because this phenomenon was unusual, but also the reason behind it, which some are calling it as maturity while others are labeling it as consolidation before the bull run. In either case, these signs, in the long run, are positive for bitcoin. The Bitvol Index, that measures the volatility of bitcoin is also shown surprising stability over the last 30 days. According to this index, during that period, Bitcoin’s price experienced a variation of 1.57% compared to its usual range of between 3% and 7%.
Maturity is definitely creeping into the crypto sphere as large corporations, banks and regulators are all watching it which has now bought down the malicious activities. Also a lot of people, now, have increased understanding of how bitcoin works and are bringing it to use in the best possible way, giving bitcoin a shape of actual currency than just a speculative money-making tool.
There have been only a few instances when Bitcoin has behaved in this manner and fortunately both the times it resulted in a bull run. The 60-day volatility index shows 2.37%, a figure previously recorded in March 2017, after which what we saw was a fantastic bull run taking the prices of Bitcoin to an all-time high of USD 20000. Another instance when this was recorded was this year in June, as Bloomberg reports when Bitcoin traded in a similar pattern when its prices jumped from USD 5900 to around USD 8200.
This same view shared by Joseph Young who too feels that these long periods of stability could be signals of initiation of a new rally. He tweeted,
Bitcoin is seeing 17-month record high stability. Has been in $6,400~$6,800 range since August 9, apart from 1 day in September when it broke out of $7k.
Historically, Bitcoin recorded long periods of stability before initiating a new rally. https://t.co/Jic0J51RMq
— Joseph Young (@iamjosephyoung) October 7, 2018
Bitcoins stability gets an overwhelming response from the street
Not just Young, a lot of voices on the street are speaking about this price stability of BTC that has come in over past 5 weeks or so.
Nigel Green, founder of DeVere Group, a financial advisory organization was quoted saying
“This could be a signal that the cryptocurrency market is maturing”
Mike McGlone, Bloomberg Intelligence commodity strategist voiced his opinion saying
“This is a maturing market, so volatility should continue to decline,” “When you have a new market, it will be highly volatile until it establishes itself,” “There are more participants, more derivatives, more ways of trading, hedging and arbitraging.”
Gil Luria, director of research at D.A. Davidson & Co. feels this stability is due to the exit of speculators. He says
“Volatility and volumes are two sides of the same coin,” he said. “When speculators are involved, they drive unusually high volumes as well as volatility by trading the asset with high frequency. As speculator involvement is diminished, volumes go down and volatility goes down as well.”
Mati Greenspan, a prominent crypto analyst at eToro, states that a lower volatility rate is important for large-scale investors primarily investing in the new asset class as an alternative to the offshore banking market:
“When considering how to store their wealth, people usually try to think what asset will hold its value or even increase over time. For Bitcoin, the high level of volatility is a double-edged sword. It attracts a lot of attention on the way up but acts as a deterrent on the way down.”
Bitcoin stability is definitely a good sign for traders, investors and enthusiast as what the world feared about( the bitcoin volatility) is slowly ending and may start a bull run soon.
Are this consolidation and stability a sign that bull run is coming? Do let us know your views on the same.
Nilesh Maurya has been associated for past 8 years as an Investment Banker with Omega Capital, a bespoke Investment Banking outfit having offices in Mumbai, New York, Singapore, and Dubai. He has been a regular contributor to business publications such as Business India and Market Express and has been a mentor to many start-up companies. Nilesh Maurya has been associated for past 8 years as an Investment Banker with Omega Capital, a bespoke Investment Banking outfit having offices in Mumbai, New York, Singapore, and Dubai. He has been a regular contributor to business publications such as Business India and Market Express and has been a mentor to many start-up companies. Follow him on Twitter at @KoinKing1 or connect with me on linkedin.