Bitcoin matures: volatility at an all-time low

Bitcoin has earned a reputation as a volatile asset, but data suggests that may be changing.

The largest cryptocurrency by market capitalisation hit a nearly five-year low this month in realised 30-day volatility, according to data from ecoinometrics, despite a recent rally to new all-time highs followed by a correction.

Bitcoin's sharp swings in price have often spooked mainstream investors. But starting in 2022, and continuing through this year, the cryptocurrency's volatility has often fallen below that of Wall Street's biggest stocks.

In fact, this year and last, when the chipmaker's stock was experiencing turbulent movements, Bitcoin's price has been more stable - a remarkable change for an asset once considered too risky for the most cautious investors.

"Bitcoin's volatility continues to drop. Since 2022 Bitcoin has been less volatile than mega-cap stocks such as Nvidia. And since 2024, despite new highs and a significant correction, volatility has continued to fall. It is now close to a five-year low. Exactly what you would expect from a maturing asset," wrote ecoinometrics on X.

Even during the current bullish market, Bitcoin trading has been noticeably less volatile than in previous cycles. Macro analyst Lyn Alden stated that Bitcoin's market cycles seem to be maturing, with this cycle "longer and less extreme" than previous ones.

In the past, Alden explained, these rallies tended to "heat up" very quickly and then "burst like a bubble". In the current cycle, by contrast, "movements to new highs could be followed by significant consolidation phases."

A Market That Matures

Bitcoin's recent drop in volatility is just one part of a broader trend that shows how cryptocurrency is maturing and finding its place in the mainstream financial world. In early 2024, the first ETF spots on Bitcoin in the US were approved, offering both retail and institutional investors the opportunity to gain exposure to the leading cryptocurrency through regulated products.

For traditional investment firms, asset managers such as BlackRock and Fidelity now offer direct access to Bitcoin, helping to increase liquidity and reduce extreme price swings.

Another recent development has been the ability for Americans to invest in Bitcoin through their 401k retirement accounts. With diversified portfolios beginning to include Bitcoin allocations, the cryptocurrency is also receiving a steady flow of institutional capital from pension funds, foundations and insurance companies.

Bitcoin's growth as an alternative asset class continues to shake off its image as a purely speculative instrument.

Extreme swings such as those of the past may soon be a thing of the past. Indeed, since the end of last year, Bitcoin has shown a positive correlation with the stock market in both risk-on and risk-off phases. Although this contrasts with its original raison d'être, it further reinforces its status as an increasingly mainstream asset.

More Investor Friendly

For investors, a less volatile Bitcoin is significant because it implies less risk and a more stable profile in portfolios. Once considered the 'Wild West' of the financial world, Bitcoin is growing and establishing itself as an asset capable of occupying a place in long-term investment strategies.