• Bitcoin’s annualized volatility dropped to 45% in January 2024, the lowest since 2012, attributed to its integration into traditional finance through spot ETF approval.
• This shift, while less appealing to short-term investors, signifies Bitcoin’s growing maturity suitable for long-term institutional investors.

Bitcoin’s volatility has reached a historically low level not seen since 2012, coinciding with its integration into traditional finance following the approval of spot ETFs.

During Bitcoin’s early stages, the asset exhibited substantial volatility due to its novelty, resulting in remarkable price surges. For instance, BTC experienced an extraordinary surge from a low of $2 in November 2011 to a peak of $1,163 in November 2013, representing an impressive 58,000% gain in just two years.

However, this heightened volatility also led to sharp price declines, with the cryptocurrency plunging by 87% from its $1,163 high to a low of $152 in January 2015. As of January 2012, Bitcoin’s volatility stood at 179%, according to data from Charlie Bilello, Chief Marketing Strategist at Creative Planning.

Bilello’s disclosure indicated that Bitcoin’s volatility has continued to decrease since then, although it has remained relatively high compared to more stable asset classes in traditional finance. Volatility decreased to 68% in January 2013 but then surged to 140% in January 2014 as BTC experienced increased demand.

Starting from January 2014, Bitcoin’s annualized volatility witnessed successive yearly declines until reaching a low of 49% in January 2017. Following the 2017 bull run, during which BTC reached a new all-time high of $19,666, Bitcoin volatility climbed to 102%.

Volatility, in this context, refers to the degree of price fluctuations within a specified period for a digital asset. Cryptocurrencies characterized by high volatility can undergo substantial price changes in short time frames, presenting both opportunities and risks for investors.

Will Bitcoin ETFs Help Reduce Volatility?

Bitcoin’s annualized volatility, which had been fluctuating between 63% and 85% since 2019, saw a significant decline to 45% as of January 2024, marking the lowest recorded rate since 2012.

This reduction in volatility is attributed to Bitcoin’s integration into traditional finance (TradFi) following the SEC’s approval of the spot Bitcoin ETF. Interestingly, despite initial high volatility after the approval, driven by substantial outflows from the Grayscale Bitcoin Trust (GBTC), analysts at Bitfinex note that volatility has eased as the Bitcoin ETF market matures.

As the market progresses towards maturity, the impact of outflows on volatility has lessened. Bloomberg ETF analyst James Seyffart had previously predicted that the approval of the spot Bitcoin ETF would lead to a decrease in Bitcoin’s volatility.

While the decreased volatility may not be attractive to short-term investors seeking substantial price movements for quick profits, it signals Bitcoin’s growing maturity as an asset class. This shift in volatility is likely to be welcomed by long-term institutional investors.

The Bitcoin price has been consolidating around $42,000 for a while. Analysts are optimistic for Bitcoin considering the next halving event is just two months away.