First the price of Bitcoin collapsed and now its volatility has fallen to its lowest level since May last year – before it started its big surge. Investors welcome low volatility in most markets but it is not clear what it means for the digital currency.
The stabilisation in Bitcoin’s price in recent months has led to a decline in speculative investment activity and lower volatility.
Bitcoin is currently trading around A$9300 – a high for the past month. Over the past month its lows have been between $8700 and $8850, while it has traded over $9000 on a number of occasions.
A Bloomberg reports quotes Gil Luria, director of research at DA Davidson & Co, who says: “Volatility and volumes are two sides of the same coin. When seculators 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.”
Bloomberg Intelligence commodity strategist Mike McGlone says: “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.”
David Tawil president of ProChain Capital, a cryptoasset fund, says the low volatility makes sense given Bitcoin’s relative illiquidity.
“The buying community are folks that are invested on a long basis for a long period of time,” Tawil says.
However, some analysts are concerned by the low volatility. Naeem Aslam, chief market analyst at TF Global Markets, says that if volatility and volume both remain low it means “capitulation”
Forbes quoted Joe DiPasquale, the chief executive of cryptocurrency fund or hedge funds BitBull Capital, who says Bitcoin is trading in a tight price range and this has dampened trading volume, which impacts volatility.
“Traders are in wait and see mode,” DiPasquale says.
Cryptocurrency news site Hacked says the fall in volatility can be accounted for, in part, by the introduction of Bitcoin futures contracts and other derivatives, which have added depth to the market.