Bitcoin volatility falling: Reasons and consequences

Since its creation in 2009, Bitcoin has attracted growing interest as a form of digital currency and investment asset. However, one of the characteristics that long defined Bitcoin was its extreme volatility, which often made it difficult to use as a stable and predictable medium of exchange.

Over the years, however, we see that Bitcoin price volatility gradually decreases.

In this article, we will examine the factors that have contributed to this reduction in volatility and the implications of this development.

An overview of volatility

According to the report published by the crypto analysis company Kaiko, BTC's 90-day volatility reached 35%, making it less volatile than oil, which has a volatility of 41%. Such a drop in bitcoin price volatility has not been observed since 2016.

90-day price volatility of Bitcoin, Ether and oil. Source: Kaiko — source: https://research.kaiko.com/insights

Why such a drop in bitcoin volatility?

Greater market maturation

One of the main factors that has contributed to the reduction in Bitcoin volatility appears to be the maturation of the market. Over time, more and more institutional players such as investment funds, the banks, asset management companies like BlackRock similarly some large companies have started to take an interest in Bitcoin.

This increased participation has brought a dose of stability to the market, as these players often act more predictably and over a longer term than individual traders.

An increase in liquidity

The liquidity of the Bitcoin market has improved significantly over the years. Many cryptocurrency exchange platforms have emerged, allowing traders to buy and sell bitcoin more easily and at higher volumes. Transactions carried out by whales bitcoin are then more easily "drowned" in the mass. Greater liquidity generally means that large transactions do not have as significant an impact on the price, which helps reduce volatility.

Growing adoption of bitcoin

The growing rise of Bitcoin as a means of payment, as well as its acceptance by more traders and service providers, has also played a role in reducing volatility.

In fact, the more bitcoin is used in everyday transactions, the more likely its price is to be influenced by traditional economic factors, such as supply and demand.

Less impact with external events

During bitcoin's early years, the price was often subject to high volatility due to external events such as exchange hacks, sudden government regulations, and statements by public figures. We remember, for example, before 2020 that the slightest ban or change in regulation for miners led to a sudden drop in the price of bitcoin.

Over time, the Bitcoin market has become more resilient to these events, which has helped reduce their impact on price volatility.

The Halving

The halving process of Bitcoin mining rewards, which occurs approximately every four years, has also had an impact on price volatility. Halvings reduce the supply of new Bitcoins entering the market, which can potentially influence the price upwards in the long term, but also reduce selling pressure from miners. In fact, in the long term, this pushes the price of bitcoin upwards due to theOffer limited to 21 million units.

What are the implications global effects of a drop in the volatility of the price of bitcoin?

Reducing Bitcoin price volatility has significant implications on market psychology and on the behavior of traders and investors. Also, the reduction in volatility strengthens credibility more generally as an investment asset and attracts more institutional investors. Likewise, it attracts investors who were previously cautious about the idea to invest in bitcoin because he specifically feared volatility.

Additionally, reduced volatility encourages greater use of Bitcoin in everyday transactions, strengthening its use case as a payment currency. This is particularly true for stores that want to accept payment in bitcoin.

This is then a good thing for the adoption of bitcoin as it opens up new opportunities as a financial asset and digital currency, while strengthening its long-term legitimacy.

Note: No financial advice is given in this or any other article on zonebitcoin. This is information of which you are the sole judge and master. Be responsible with your investments and only invest as much as you are willing to lose.

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