Bitcoin volatility has doubled since November

Bitcoin volatility has doubled since November, but data suggests that on a risk-adjusted basis Bitcoin has outperformed every other major asset class for the past 10 years.

Bitcoin volatility has doubled since November

The Bitcoin Volatility Index is a widely-used metric in crypto industry to measure quantitatively how much the price of Bitcoin varies over any given period of time, usually 24 hours.

Since November, the volatility index has increased from below 2.9% daily standard price deviation to over 6% in February and 5.3% for the trailing 30 days. It may go even higher in the months to come as Bitcoin attempts to break the 60k and 100k barriers.

Despite its volatility, institutions are lining up for Bitcoin. Elon Musk sent the crypto industry into a frenzy earlier this month with a $1.5 billion bitcoin buy for the Tesla treasury. Today, MicroStrategy added $1 billion. Today, Square added $170 million. The money keeps coming, and the $1.5 trillion stimulus package hasn't even been finalized yet.

The Bitcoin Volatility Index has doubled since November.

While big green candles are lauded by hodlers and news publications, the more volatile an asset, generally the less people want to hold it. Volatility increases the costs of hedging against downside risk — usually by short-selling other correlated like BCH or ECH as insurance — and greatly increases the time traders have to spend in front of their computers. The more stable the price, the easier it is for exchanges to onboard new customers.

Stock Market Volatility

For comparison, the volatility of gold averages around 1.2% per day, the S&P 500 averages 1.1%, the Nasdaq averages 1.8%, and other major fiat currencies range from 0.5% and 1.0% per day (thus, stablecoins).

Historical stock market volatility. Source: Chartr.co

The stock market has had only 11 bear markets since 1929, where prices fell by 20% or greater in a single day, which makes it a lot more stable than Bitcoin all things considered.

Bitcoin, on the other hand, crashed 13 times by greater than 30% in less than 30 days, not counting this most recent crash this week. Bitcoin is easily the more volatile asset, and it's not even close.

Sharpe Ratio

However, Bitcoin has outperformed every major asset class — including gold, stocks, bonds and real estate — when you consider both its excess return and its standard deviation together over the past 10 years.

The Sharpe Ratio is a financial tool that helps investors measure the risk-adjusted return of an asset. It consists of taking the excess return of the portfolio, relative to the alternative risk-free rate, and dividing it by the standard deviation. If we plot the Sharpe Ratios of other asset classes next to digital assets, we can see the returns more than justify the volatility.

Risk adjusted returns calculated using Sharpe Ratio. Source: Woonomics

So yes, Bitcoin is volatile. But it's volatile in a good way if you zoom out and focus on the big picture. Digital currencies are in a league of their own when it comes to producing excess returns and controlling for downside risk.

Product Updates

In recent weeks, Redeeem has added a number of features to help our customers cope with the higher volatility. We reduced fees to nearly 0% for BTC/USD swaps, internal BTC transfers, and ERC-20 stablecoin deposits.

  1. We reduced the fees to swap from BTC/USD on the platform for nearly 0% fee each way (100 sats).
  2. We are now accepting ERC-20 stablecoin deposits in Tether (USDT), DAI (DAI), True USD (TUSD) and USD Coin (USDC) for only 0.005% fee which will land in your USD wallet.
  3. We reduced the fees to send BTC internally to another Redeeem user to nearly 0% fee per transfer (100 sats). Please note, you will still get quoted the normal mining fees, but they will be ignored if we detect an internal trade.

We encourage the use of stablecoins on Redeeem to reduce volatility and protect your margins on gift card trading. Or you can swap over to Bitcoin to enjoy the market volatility.

Send stablecoins to your USD wallet for only 0.005%.

We do not currently pay out in stablecoins or fiat currencies — we're only bitcoin in and bitcoin out for the moment. But thankfully, you no longer have to leave the page and open that ugly CoinPayments invoice window and worry about not sending enough coin. Whatever you send, your USD wallet will receive in full (usually within 50 confirmations).

Read Fund your Redeeem wallet with 4 new stablecoins for more information how to send stablecoins to your USD wallet and BTC/USD swaps.