Bitcoin volatility has been on the rise in recent weeks, although it remains far off from historic levels. This comes after a period of relatively low volatility in the crypto market, which is unusual considering Bitcoin’s reputation for extreme price swings.
In the last couple of weeks, Bitcoin experienced a significant drop from $29,000 to $26,000, including a 7% fall in just ten minutes. However, it quickly bounced back, reaching $27,700. Unfortunately, those gains were short-lived, as the price dropped again to $25,900.
Although this recent bout of volatility is minor compared to Bitcoin’s past performance, it is still a welcome change for those accustomed to the asset’s unpredictability. The increase in volatility was primarily driven by a positive court ruling regarding the Grayscale Bitcoin Trust, but gains were subsequently given up when the SEC announced it needed more time to consider Bitcoin ETF applications.
The absence of volatility in 2023 has been more surprising than its recent increase. Bitcoin has been known for its extreme price fluctuations since its inception fourteen years ago. However, the lack of volatility earlier in the year was an anomaly.
Looking ahead, it is expected that volatility will return to prior levels. One of the reasons for this is the thin liquidity in Bitcoin markets. Order books are currently thin, meaning that it takes less capital to move prices, leading to amplified movements both to the upside and downside.
The low trading volume and capital outflow from the crypto space have contributed to the subdued volatility. As investors have pulled their capital and retreated from riskier assets amid challenging macro conditions, trading volume has dropped. However, given the nature of the crypto markets and the fact that volatility has never truly gone away for extended periods, it is likely that the subdued markets will eventually ramp up again.
While recent weeks have seen a slight increase in volatility, it pales in comparison to Bitcoin’s past performance. The future may bring back the extreme price swings that the crypto market is known for, as liquidity improves and market conditions shift.
In conclusion, while Bitcoin’s volatility has increased in recent weeks, it remains far off from historic levels. The relatively calm period earlier in the year was unexpected, given Bitcoin’s reputation for extreme price swings. However, with thin liquidity and the inherent nature of the crypto markets, it is likely that volatility will return to prior levels in the future.
