Bitcoin has often been labelled as the king of the swingers because of its high volatility and very sudden extreme swings in its value.
However, the largest and arguably the most volatile cryptocurrency of the world has been trading for days at around $20,000 and has not gone much higher than that since June.
This is bad news for traders and exchanges who benefit from bitcoin’s wild price swings, and it opens the way for its chief rival ether, which is getting ready to boost its crypto contest by switching to a meaner and slimmer blockchain.
“Bitcoin is not dead, it’s just boring at the moment, so traders are already looking for alternatives,” said Martin Leinweber, digital asset product strategist at MarketVector.
According to data firm Coinglass, Bitcoin’s average 30-day volatility – a benchmark of how its price differs over a set period of time – has dropped to 2.7 per cent from over 4 per cent in early July.
Even during the most volatile months of the “crypto winter” of low prices, that number has remained strongly lower than 5 per cent in 2022, a deviation from the previous five years, when even periods of lower volatility were followed by hikes in prices as high as 7 per cent.
Likewise, CryptoCompare’s index, which utilizes bitcoin futures contracts to calculate how far prices are expected to vary, is just over 77, down from more than 90 at the start of the year.
Bitcoin has experienced durations of lesser volatility in the past, mostly during time frames of depressed or falling prices, with price fluctuations frequently returning as trading activity increases.
But this lull could be different.
“This has been a relatively long period of decreased volatility, it’s now beyond anything we’ve seen in even 2019 where these levels lasted around a quarter to a quarter-and-a-half,” said Stéphane Ouellette, CEO at crypto derivatives provider FRNT Financial.
MarketVector’s Leinweber noted an increase in trading for ether and its derivatives as a result of bitcoin’s low volatility.
Undoubtedly, the price of ether, the second largest cryptocurrency that has a market cap of abou t$190 billion compared to bitcoin’s $380 billion, has increased by 50 per cent since the beginning of July, while bitcoin has remained flat.
According to data firm Messari, ether does not offer more price theatrics; it is far less volatile, as the highest level reached by it was just over 2 per cent in March 2020 when the worst market rout due to the pandemic was ongoing,
However, it is currently soaking up a lot of the crypto buzz as it approaches its “Merge,” which is expected to take place later this month, when it undergoes a radical shift to a system in which the creation of new ether tokens becomes far less energy-intensive. more info
For long-term investors in traditional assets like stocks or bonds, narrower price swings may appear to be a positive. However, for many investors and key players in the bitcoin and crypto economy, this is not the case. Exchanges, for example, make money by charging trade fees; when volatility falls, trading activity tends to dwindle.
Stabler values also offer fewer opportunities for crypto hedge funds, which typically trade on price swings.
The question therefore arises what is the reason behind a drop in the volatility of bitcoin?
For one thing, there has been an investor flight from the broader crypto space, which means fewer people are willing to trade their coins.
Cryptocurrencies have had a rough year as investors dumped risky assets across the board in the face of rising inflation, with bitcoin falling roughly 60% and ether falling 55%. Major meltdowns at two major coins, as well as the bankruptcy of a major lender, have also eroded confidence in the sector.
According to Blockchain.com, the dollar value of bitcoin trading volumes on major exchanges over a seven-day period ranged between $127 million and $142 million, the lowest levels since October 2020. Similarly, bitcoin futures trading is at its lowest level since November 2020, according to data from the Block.
“The most elevated levels of volatility typically coincide with the greatest levels of interest in crypto,” said Ouellette added. “People got burned and are saying ‘I don’t really care about crypto right now’.”
(Adapted from Reuters.com)