February turned out to be great for Bitcoin – that’s hard to deny. Even the most cautious stone-faced investors would have found it difficult to contain their excitement when BTC crossed the $50,000 threshold.
Sentiment was so optimistic that prices hardly budged at all after the January CPI report – a 2% drop is nothing in crypto-speak. Comparisons to the 2021 bull market were natural, fueling a new set of“Bitcoin at $100,000” predictions.
However, this enthusiasm should be dampened. Upon closer inspection, the current rally appears to be largely driven by psychology. The broader picture indicates that we are in for a lot more of the dull price movements that accompanied it, and that 2024 will be quite different from the euphoria of 2021.
Markets have a weakness for round numbers, and this is even more true with cryptocurrencies, where everything is exaggerated. on February 9 we saw not one, but two such numbers announced.
First, the Bitcoin ETF for real assets, the widely publicized cryptocurrency access for institutional TradFi investors, reached $10 billion in assets under management in less than a month of trading. Second, the S&P 500, representing “big tech and finance,” reached the index‘s historic 5,000 mark. What lies beneath and before these price movements tells a different story.
Bitcoin traded in a relatively narrow 1-2% range in the days leading up to the current rise. Macroanalysis may indicate that the market remained cautious due to the Securities and Exchange Commission’ s indecision on issues such as ETF options on BTC spot, whether Ethereum is considered a security or a commodity (and thus the approval of ETFs on ETH), and the Federal Reserve’s reluctance to cut interest rates.
While this macro perspective is not untrue, it is short-sighted. An analysis of Bitcoin’s actual volatility over the years clearly suggests that the narrow ranges and caution are not merely a reflection of the current situation, but a signal of steady progress that contrasts sharply with the wild fluctuations of the previous bull market cycle, and is here to stay.
Actual volatility, a statistical measure of how much an asset’s price has varied from its average over a given period of time, is used to assess the risks involved, where higher levels indicate greater risk. For Bitcoin (and for Ethereum in second place), this value is decreasing.
In 2021, BTC ‘s actual volatility has remained above 100% per week and approached peaks as high as 140%. However, over the past year it has typically remained below 60%.
Ethereum, moving in tandem with BTC, has followed similar patterns, reaching higher ranges, where real volatility in May 2021 reached as high as 300%. It has also consistently stayed below the 60% level over the past 12 months.
Monthly deviations for both currencies have been even lower, usually in the 30% to 50% range, sometimes going as low as twenty.
While what constitutes low, moderate or high actual volatility depends on market conditions, the asset being analyzed and individual risk tolerance, a range of 10% to 30% is usually classified as moderate. Apple stock, for example, fully fits into this category.
It will still be some time before we can call Bitcoin and Ethereum moderately volatile, comparing them to Apple shares without triggering an “apples and oranges” reaction. Nevertheless, the fact that we are seeing actual volatility reach moderate ranges is a clear sign that we are headed that way.
While psychologically significant round numbers and bad macroeconomic forecasts may still cause price reversals for a while, sharp increases will be quickly suppressed. This does not mean that reaching the next milestones of $100,000 for Bitcoin and $10,000 for Ethereum is impossible this year. Rather, it indicates that the road to new peaks will be a slow and steady process as volatility gradually gives way to stability.
This is not an attempt to dampen the bullish sentiment of recent days. Rather, it’s a balanced view of current events that, while less exciting compared to the typical “lunar” cryptocurrency forecasts, calls for a celebration of growing up. As an almost mature market, it is time to tone down our enthusiasm and channel that energy into patience. A new normalcy, characterized by consistently mild price movements, has already arrived for Bitcoin and Ethereum.
