Bitcoin and volatility are two words that often go hand in hand. The cryptocurrency is often cited to be highly volatile, for good reason, and investors are cautioned against investing in the digital currency in the hope of getting rich fast. While volatility means that the price of an asset may rise, it is just as likely to drop.

For Bitcoin, after the highs of the past two years, the past few months have been rough. The world’s oldest and biggest cryptocurrency is down by 15.41 percent since the start of the year, and in the negative by 21.75 percent when compared to year-over-year prices.

Also read: Is investment in 'volatile' Bitcoin better than purchasing gold?

Bitcoin’s price decline has been affected by the Federal Reserve’s hawkish stance in the face of record-high inflation levels in the US, which has spooked investors into already pulling money from riskier assets. For many investors, cryptocurrencies are risk incarnate.

The fears of a potential conflict on the Russia-Ukraine border has further stoked fears and driven prices down. While Bitcoin had recovered to above $45,000 earlier in the week, simmering tensions and potential escalation once more eroded all the gains.

Also read: Ukraine legalises cryptocurrencies amid tensions with Russia

The price movement of Bitcoin has mostly followed other US stocks, which have had fairly volatile phases themselves, despite some standout performance in the segment. It can be assumed that the cryptocurrency will be less volatile when the correlating tech stocks stabilise in prices as well.

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What the experts say

“India VIX

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“Volatility may continue in the near term on account of global uncertainties such as Fed policy, inflation and geopolitical tensions. Investors should treat volatility as a friend rather than as an enemy. India is on a structural upcycle for the next 3-5 years. Three major cycles have turned positive after almost 7-8 years. Corporate earnings should grow at 15 percent CAGR over the next 3-5 years. Banking asset quality cycle is also improving after almost six years and even real estate has turned upward after almost 7-8 years. Hence, with India firmly on an upcycle, investors should use the volatility to gradually buy stocks,” added Vaibhav Agrawal, CIO and Founder, TejiMandi, offering a different viewpoint.

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Mapping Bitcoin's volatility

Bitcoin’s last 30-day volatility index stands at 3.87 percent, with the last 60-day volatility being at 3.21 percent. While this is certainly much higher than the volatility index of gold which usually stands around 1-1.5 percent, the volatility is actually much lower than the average volatility of Bitcoin in the past years.

Also read: JP Morgan predicts long-term Bitcoin price may reach $150,000

Only in 2016 was the average 30-day volatility of Bitcoin lower than the two figures at 2.49 percent, according to data from The Bitcoin Volatility Index from the buybitcoinworldwide.com website. Year 2021’s average Bitcoin volatility was at 4.56 percent, highlighting the two massive bullish rallies the coin saw in the past year.

(Edited by : Shoma Bhattacharjee)

First Published:Feb 18, 2022 8:30 PM IST