Bitcoin volatility was at its lowest two years ago today – here’s what happened next

As the price movements of BTC hit their calmest point of 2018, we look back to the lowest ever BTC 30-day volatility level, and what happened in its wake. On this date two years ago (October 9th, 2016) Bitcoin’s volatility rating over 30 days hit the lowest index score it has ever achieved: 0.75. Today, though that same index metric is currently double where it was then, Bloomberg and other outlets were reporting that the current 17-month volatility lows left Bitcoin at an ‘inflection point’, with commentators, analysts and investors unsure of where its next move may be – or whether this calmness is the new normal, at least for a while.

So, we thought it would be worth taking a look at what happened back then, where Bitcoin ended up by the end of that 2018, and whether that could tell us anything about what may happen in the rest of 2018.

Bitcoin’s Bad Year

The year so far for Bitcoin has been well mapped out in our market reports many times, but a potted summary tells us that it has been in a steady overall decline from it’s all-time highs of early January. While its bottoms have consistently bounced off different points around the $6,000 mark through the year, the peaks in between have been lower every time – quite simply, right now, we are pretty much at the thin end of the wedge. At least, if the trend were to continue we will be by the end of the month.

These ever smaller oscillations in price have lead, in turn, to a slowing of the volatility index for Bitcoin – an indicator that tracks price change over time. The specific measure we’re quoting here comes from Bitvol, and uses the standard deviation of the daily open price for the preceding 30-day window to calculate assess the price movement. Volatility itself, is intrinsically linked to the volumes of trade being done in an asset – so as volumes drop off, as we have seen lately, you would expect price volatility to decline too.

Here we can see how that how the variation in the price of BTC has steadily declined through the year, reflecting the ever lowering height of that wedge.

This chart takes the standard deviation over 30-, 60- and 120-day periods, where – as we can see – the 30-day line has really dived sound during October. It, of course would be the quickest to react to the current calming of the market – and it is now registering around 1.5, having been as high as 8 when it was reflecting the big gains of late 2017 – and the same again in February, when it was charting the corresponding decline in prices that came with the new year.

Looking back at the entire history of Bitcoin, we can see that the current levels of volatility to indeed – as Bloomberg have noted – take us back to May of last year – as denoted by the Green line. However, tracking the red line, which roughly corresponds to the lows in volatility Bitcoin has lived through we can see it bottoming out on roughly four occasions – mid 2012, early 2013, spring of 2016 and October of 2016.

It’s the last of these we want to look at in more detail.

When Bitcoin’s volatility hit 0.75 – around the lowest it’s ever been – on October 9th, 2016, it was worth worth something around $615. The price, having moved towards $800 earlier in the year, was recovering from the 20%+ dip instigated by the BitFinex exchange hack, news of which had broken in late August. Driven by factors such as the progressive devaluation of China’s currency and the burgeoning interest from investors there, as well as the start of large-scale business focused speculation, by early 2017 it had crossed the $1,000 mark for the first time in over three years – and the first time post-Mt.Gox.

Drawing comparisons between events two years ago is hard at best, more likely futile, but 2016 tells us that we may have to wait until that volatility level sinks a little lower before the market makes a move.

The first thing to note is that the bullish run of late 2016 was from a much lower point of volatility than we are experiencing even now. It was pretty much post-BitFinex capitulation by the time the volatility dipped below 1 in the early days of October, and Bitcoin’s price had been bumping along in the mid-low $600 range since late June at that point, around three-and-a-half months. It’s been a tough year, less effected by bad news like BitFinex as much as a general ennui regarding the outlook for the cryptocurrency space as a whole. Yet, it’s bought us to very similar points.

Let us not forget that Bitcoin was worth very roughly 20% more than it is now as recently as September. We may well have to wait for the point of that price wedge and beyond before anything of not happens price wise. Quite simply, while volumes are so low, price isn’t going anywhere – and with prices so stable, an outside for of some description is going to have to push a market currently powered by little more than inertia.

Unless the opening of Bakkt, or a unexpected decision from some legislative quarter, comes in to inject much needed interest – and thus volume – into the Bitcoin market in the same way that happened late in 2016, things will continue as they are for a while. By comparison, according to CryptoCompare the number of Bitcoin changing hands now – around 200k between Sept 27th and Oct 4th – is roughly equivalent to what what happening around the low point in 2016, which is pretty sobering following the crazy volumes of earlier in the year.

However, without a fundamental shift in perception of cryptocurrencies – for which Bitcoin still serves as the ‘brand name’ – as being in the doldrums and waiting for a proper use case, one wonders if Bakkt will not just represent the same money being spent in a different way rather than an injection of new interest.

Bloomberg may be a bit premature in calling this an inflection point – but not by too much. It is, however, absolutely right to say the market has matured – and we’d be well advised to consider that as a positive. For now, there’s no sign that this isn’t the shape of things to come for a while, until something comes along to shift opinion to the positive or the negative and kickstart that index again.