Bitcoin's Volatility Is Decreasing Relative to Stocks. Is This a Positive Sign? Perhaps Not

On Tuesday, Bitcoin and other cryptocurrencies continued to languish at depressed levels, with volatility measures across the crypto market at historic lows. Bulls believe it's a positive omen, but one could argue that the inverse is true.

The price of Bitcoin BTCUSD +0.09% has decreased by less than one percent over the past twenty-four hours to $29,150, remaining below the psychologically significant $30,000 level that provided support for the largest digital asset for months until late July.

Matteo Greco, an analyst at digital asset investment firm Fineqia International, stated, "Market volatility has been relatively low over the past two weeks, as evidenced by the decline in Bitcoin's 10-day realized volatility, which is approaching volatility levels typically observed on equity, bond, and gold markets."

Bitcoin has been remarkably stable over the past few weeks, whereas the stock market has been volatile, with significant movements for the Dow Jones Industrial Average and S&P 500. The 24-hour historical volatility of Bitcoin, or BVOL, reached its lowest level ever last week, according to analysts at cryptocurrency exchange Bitfinex.

The Bitfinex analysts wrote in a note this week that "historical precedent suggests that when the BVOL 24H metric drops to low values and begins a sideways trajectory, it often precedes a significant price movement for Bitcoin." "The slight increase we currently observe, following such a lull, may be reminiscent of previous situations, possibly portending a significant and volatile change in Bitcoin's price trajectory."

For some time, crypto enthusiasts have propagated the argument that a period of low volatility is ultimately beneficial for Bitcoin because it indicates the emergence of a new bull market. However, there are indications that the opposite is true.

Bitcoin requires customers to maintain prices rising. Low volatility may be appealing to institutional investors, but the adoption of digital assets by financial behemoths has been crypto's "Waiting for Godot" for years, so don't get your hopes up. Despite the fact that financial titans like BlackRock (ticker: BLK) and Fidelity have expanded their crypto business lines in 2018, the holy grail of pension funds and insurance companies remains distant, if not unattainable.

This leaves individual investors. And all indications point to retail fleeing the crypto bear market that has seized the industry for the past year. Coinbase Global COIN –4.20% (COIN) is experiencing a precipitous decline in trading volumes, as retail investors increasingly turn to more volatile tokens to achieve the same thrill that Bitcoin once provided. Cryptocurrency traders seek thrills. Bitcoin may need to be volatile to attract the type of purchasers that will drive up its price.

Ether, the second-largest cryptocurrency after Bitcoin, has declined by less than 1% to $1,830. Alternative cryptocurrencies, or altcoins, such as Cardano and Polygon, declined by less than 1%. Dogecoin DOGEUSD +1.13% and Shiba Inu each lost 2% as the value of memecoins fell further into the negative.