Bitcoin’s slide resumed on Friday as it tumbled to $37,995, down about 9% in the past 24 hours. Investors had a respite for a couple of days after the cryptocurrency lost nearly 40% of its value from peak to trough this week, going from $49,860 to $30,200.
But don’t expect a calm to settle in.
Bitcoin is as volatile today as it was in 2014, DataTrek Research pointed out in a note on Friday. Indeed, despite soaring in value from $200 billion in 2014 to $1 trillion in April—before its recent bust—Bitcoin’s volatility hasn’t budged, averaging daily price moves of 3.7%.
For context, the trade-weighted dollar moves an average of 0.3% a day, making Bitcoin about 13 times more volatile, according to DataTrek. “If you are involved, we recommend a position size that acknowledges this is a $750 billon asset that still trades like it is a $1 billion asset,” DataTrek co-founder Nicholas Colas wrote, referring to Bitcoin’s recent market value.
The bigger a stock, the less volatile it gets. And spiking volatility is often a sell signal, one that shows investors are losing faith in a company’s prospects.
But Bitcoin’s market value is deceptive. About 78% of the total Bitcoin supply, 18.7 million coins, is illiquid—held off exchanges in digital wallets or going into escrow for borrowing or lending, according to Deutsche Bank. Less than $1 billion of Bitcoin changes hands daily.
(ticker: JPM), a stock with a market cap of $486 billion and 15 million shares trading daily, has average volume worth $2.4 billion. Compared to gold, which is often cited as an alternative asset to Bitcoin, the crypto’s daily volume is paltry, amounting to just 1.9% of the precious metal, according to Deutsche Bank.
While trading in Bitcoin doesn’t amount to much volume, the broader derivatives market is far larger and may be amplifying the volatility. The threat of stiffer government regulation is also mounting, causing price jitters. And the prospect of a Bitcoin carbon tax isn’t out of the realm as governments look to cut the carbon footprints of their economies since mining the stuff now consumes as much electricity as countries like Argentina.
With so many forces battering the price, Bitcoin isn’t likely to settle down any time soon.
Write to Daren Fonda at [email protected]