Analysis: Bitcoin Volatility Has Fallen Since 2018, but 3-Sigma Price Swings Have Become More Frequent
Bitcoin's overall price volatility has fallen sharply from past years, but unusually large swings are occurring more often.CoinDesk reported on October 10 that Bitcoin has recorded 10 so-called 3-sigma moves this year, defined as price swings that exceeded three times its 30-day volatility. That is more than the eight such episodes recorded in 2018.CoinDesk described a 3-sigma move as an unusual level of volatility that deviates sharply from Bitcoin's typical price action.Bitcoin's broader volatility, however, has dropped substantially from past levels. An analysis of its price trend this year showed volatility at about 46%, down 38 percentage points from 84% in 2018.Experts say day-to-day volatility has eased as institutional investors entered the market and liquidity expanded. But macroeconomic shocks and crowded positioning in derivatives markets are still triggering sudden jumps and drops.Nicolae Ciutravo, Paradigm's head of Europe, the Middle East and Africa, said the market has become more stable under normal conditions as institutional investors and exchange-traded funds have come in and liquidity has increased. Shocks tied to macro conditions, leverage and investor positioning, however, have not disappeared.Some analysts also say investors' efforts to generate returns by selling options during periods of low volatility can amplify abrupt price moves.Luke Strijers, chief executive officer of Deribit, said traditional value-at-risk, or VaR, metrics do not adequately capture the risk of extreme losses. If investors increase portfolio exposure simply because volatility appears low in normal periods, sudden price swings could deliver a bigger blow to their portfolios, he added.