Bitcoin’s 12-month annualized volatility has plummeted to its lowest point in 12 years, marking a significant shift in the cryptocurrency’s historical trend. Wealth management firm Creative Planning, through its chief market strategist Charlie Bilello, reported that the volatility has decreased from a staggering 179% in January 2012 to a mere 45% in January 2024.
This decline in volatility may have far-reaching implications for the Bitcoin market, as it suggests a growing stability that could attract more long-term holders. Historically, Bitcoin’s volatility has been a double-edged sword, attracting risk-seeking investors while repelling those who prefer a more stable investment landscape.
According to Bradley Park, a web3 analyst at on-chain analytics firm CryptoQuant, “Less volatility could mean more long-term holders.” The potential allure of BTC as a store of value may strengthen as the cryptocurrency becomes less susceptible to abrupt price swings.
Adviser Accounts: A Potential Haven for Bitcoin
The trend towards lower volatility is expected to solidify, especially with the anticipated proliferation of US exchange-traded funds (ETFs) focused on Bitcoin. During a recent episode of the “What Bitcoin Did” podcast hosted by Peter McCormack, Alex Thorn, head of firmwide research at Galaxy Digital, and Bloomberg Intelligence ETF analyst James Seyffart discussed the potential impact of US spot Bitcoin ETFs on market dynamics.
Thorn and Seyffart believe that the introduction of these ETFs will act as a stabilizing force, discouraging frequent trading and fostering a more long-term investment approach. Seyffart explained, “They [advisers] don’t want to trade every day.” Instead, advisers are likely to adopt a strategy of periodic rebalancing, aligning with their target portfolio allocations.
The concept of portfolio rebalancing becomes crucial in scenarios where BTC’s value experiences significant fluctuations. If Bitcoin’s value surges, it could exceed the intended portfolio allocation, prompting advisers to sell assets to maintain balance. Conversely, a sharp decline in BTC’s value might lead to buying actions to realign with the desired allocation.
However, the cryptocurrency market may witness a growing influx of investors adopting a long-term approach as BTC’s volatility continues to diminish, anticipating stability amid the evolving financial landscape.
Related Reading | Shiba Inu (SHIB) and the $0.001 Threshold