Key Reason Why Bitcoin (BTC) Volatility Has Collapsed

Contents

  • ETFs and the stability of Bitcoin
  • Long-term holding over speculative trading

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Recent data from MarketVector has shown a significant downturn in the volatility across various sectors of the cryptocurrency market, with Bitcoin (BTC) leading the way. 

The 90-day annualized volatility for Bitcoin has seen a notable decline, reflecting a trend that has been observed throughout the past year.

This downtrend is being observed across the board: centralized exchanges, infrastructure applications, media, and entertainment, decentralized finance, and smart contract platforms have all reported similar reductions in their volatility measures. 

Analysts point to the approval of spot Bitcoin ETFs earlier this month as a key factor contributing to this stabilization.

ETFs and the stability of Bitcoin

The introduction of US Bitcoin spot exchange-traded Funds (ETFs) has been a game-changer in the crypto market, leading to a historic low in Bitcoin’s 12-month volatility. 

With the ETFs expected to continue smoothing Bitcoin’s price fluctuations, the market is witnessing a shift towards more stable trading conditions. 

The annualized volatility of Bitcoin has dropped from its peak of 179% in January 2012 to just 45% in January 2024.

This newfound stability could be indicative of a trend towards long-term holding among investors (as opposed to the short-term speculative trading that has historically characterized the crypto market).

Long-term holding over speculative trading

The decrease in volatility suggests that Bitcoin is maturing as an asset class, becoming more appealing to long-term investors. 

Experts believe that as more spot Bitcoin ETFs are launched and incorporated into advisors’ portfolios, a substantial amount of Bitcoin will be held in long-term investment accounts. 

This trend is expected to be a major factor in dampening market volatility since advisors generally do not engage in frequent trading.

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