Studying Bitcoin Volatility by Time Periods

By Clark

Trading Bitcoin successfully relies much on the cryptocurrency market volatility; hence, the need to understand Bitcoin’s volatility by time periods and the factors driving volatility.

Bitcoin volatility is the change in the price of Bitcoin. Volatility can be steady, creating a gradual upward or downward trend healthy for profit-making. However, bitcoin volatility can be extreme with sudden price leap upward or downward within a short time frame, usually within 24 hours.

Take, for instance, as of the time of this writing, Bitcoin recorded over $3500 change price drop going below $35,000, from $38,100 in less than 12 hours. Again, we see volatility come into play as Bitcoin rose from $5000 on 16th March 2020 to $63,000 in April 2021. According cryptopredictions.com, a portal providing crypto price forecasts, everyday volatility is absolutely normal not only for Bitcoin but for all cryptocurrencies.

Bitcoin Volatility Index (BVI)

The Bitcoin Volatility Index (BVI) measures Bitcoin’s daily price fluctuations against its actual price; hence, a higher index shows more volatility due to Bitcoin’s limited supply and its decentralization.

Bitcoin Volatility by Day

Based on data obtained from Coinbase, Binance, and Kraken, Wednesdays show a remarkably 36% volatility average. This might be attributed to spot selling breaking key levels accounting for increased Wednesday selloffs.

However, Fridays remain the most volatile days of the week to trade bitcoin. This might be accounted for by BitMEX and CME withdrawals happening on Fridays. Saturdays and Mondays show the lowest volatility, with Mondays recording a 35% volatility drop between 8 to 10 AM UTC.

Bitcoin’s Volatility by Year

Bitcoin recorded no volatility between Jan 2009 to March 2010 when it was created because it was a new concept.

  • February 2011, Bitcoin was at par with the Dollar.
  • November 2013, Bitcoin rose from $150 in October 2013 to an all-time high of $1,242 in November 2013.
  • In April 2014, Bitcoin suffered a significant crash, from $1,242 to less than $530.
  • In May 2017, Bitcoin rose past $2,000, and by September 2017, it had surpassed the $5000 benchmark.
  • In December 2017, Bitcoin sold for $19,783 to reach a new all-time high.
  • In February 2018, Bitcoin’s price dropped below $7,000.
  • In March 2020, Bitcoin rose to $10,944.
  • November 2020, Bitcoin rose to $19,850.
  • February 2021, Bitcoin rose to $44,200 following Elon Musk’s tweet of Tesla accepting Bitcoin as a payment option.
  • April 2021, Bitcoin rose to $60,000 as Coinbase gets set to go public.
  • May 2021, Bitcoin price crashed to $38 following Elon Musk’s tweet of Tesla not accepting bitcoin as payment any longer.

Following Bitcoin since its inception, we see an increasingly high upward and downward volatility index; going by this, hodling Bitcoin or using it as a hedge in investments may appear far more profitable owing to its high upward volatility index.

Weekend Volatility

Bitcoin’s historical data shows that the most significant price swings happen on weekends, as observed in the timeframes below.

Based on the above data, Bitcoin is likely to record a higher BVI on weekends; hence, you should trade with caution, especially between 23:00 to 3:00 UTC when the market is messier. However, periods between 3:00 to 23:00 UTC records lower volatility tending to a relatively stable price.

What Makes Bitcoin Volatile?

1.     Bitcoin is a speculative asset

Speculation is a primary reason why investors make massive gains from astronomical uptrends or loss as much as 90% of their total gains in a spiral downtrend, causing the bullish or bearish cycle to prevail.

Recently, a tweet from Elon Musk caused Bitcoin’s price to soar, and another tweet from the same person caused Bitcoin’s price to crumble from its all-time high at $65,000 due to speculations based on Elon Musk’s tweet of Tesla not accepting Bitcoin as payment.

Bitcoin is subject to speculations because it doesn’t have intrinsic worth; therefore, nobody knows the actual value of Bitcoin’s worth; neither do we understand bitcoin well enough and the real-life solution it promises to offer. Thus, the price of bitcoin will keep swinging based on assigned values and speculations.

1.     Market size

The cryptocurrency market is around $1trillion; compared with the Forex market with $500 trillion capitalization, Bitcoin will experience way more price volatility due to its lower liquidity ratio than the forex or Gold market.

2.     Bitcoin supply

There are 21 million bitcoins supply with only 3 million yet to be mined. This makes bitcoin high on demand, a deliberate ploy to make bitcoin immune to fiat currency inflation. So far, bitcoin’s deflationary model has been a propelling force in driving its volatility.

3.     Government regulations

Bitcoin is relatively nascent, with world governments yet to decide how to deal with the new cryptocurrency craze. For this reason, traders are always in constant fear of unfavorable government regulations. Recently, China’s move to regulate Bitcoin in May led to Bitcoin’s price crash. In the past, attempts by the Indian government to ban cryptocurrency trading in 2018 led to a drastic Bitcoin price drop. However, India’s Supreme court has since overturned this decision in favor of cryptocurrency regulation.

4.     24/7/365 days trading

The cryptocurrency market takes place on all days of the week at all hours with no opening or closing hour due to its decentralization. This gives bitcoin whalers the opportunity of manipulating bitcoin’s price by strategic buying at hours when the market is experiencing low activities.

Conclusion

Bitcoin volatility is an important consideration to make either as a professional trader or a market observer. Although its high volatility makes it difficult for it to be accepted as a legal tender for goods and services; nevertheless, it is an excellent tool for profit-making.

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Clark

Head of the technology.

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