A statistical measure of dispersion of returns, measured by using the standard deviation or variance between returns from that same security or market index.
What Is Volatility?
Any cryptocurrency that experiences frequent and large upward or downward movement in prices is said to be volatile in nature. Bitcoin — the first cryptocurrency to be created — is extremely volatile.
A good example that illustrates this comes between October 2017 and December 2018, when BTC hit then record highs of $20,089. Over this period, the cryptocurrency’s volatility neared 8%.
This is higher than the typical levels of volatility seen in other asset classes.
Volatility in most conventional assets is measured by the CBOE Volatility Index, also called VIX.
But in the context of BTC, the Bitcoin Volatility Index tracks the volatility of the popular cryptocurrency.
Several factors increase the volatility of cryptocurrencies.
Regulatory news such as announcements by the U.S. Securities and Exchange Commission can greatly affect the volatility of cryptocurrencies — especially if there are fears that the ability to mine or own Bitcoin may be curtailed.
Cryptocurrency volumes can also be sensitive to geopolitical news.
Bitcoin trading, and its price, surged in 2020 — and this was widely linked to COVID-19. The cryptocurrency appeared to act as a safe haven asset, and like gold seemed to be an attractive alternative to cash.
Central banks across the world have pumped billions of dollars into the economies to prevent them from collapsing on the back of COVID-19. This also draws people to Bitcoin because of how it has a fixed supply of 21 million.
Crypto enthusiasts have voiced concerns that greater government spending will fuel inflation in the future, and cryptocurrencies can help protect against this risk.