Perception doesn’t at all times match reality. We suspected that this is perhaps the case with the widely held belief that Bitcoin is significantly more volatile than other asset classes.
We tested our theory by revisiting Mieszko Mazur’s 2022 paper: “Misperceptions of Bitcoin Volatility.” In this blog post, we’ll discuss Mazur’s methodology, refresh his data, and illustrate why it’s best to approach the subject of Bitcoin volatility analytically and with an open mind.
The starting
The specter of Bitcoin’s volatility since its inception is ever-present and ubiquitous in any discussion of its status as a currency or its intrinsic value. Vanguard CEO Tim Buckley recently rejected the potential for the crypto asset to be included in long-term portfolios, stating that Bitcoin is just too volatile. Does his perception correspond to reality?
Mazur’s findings
Mazur’s study focused on the months before, during, and after the March 2020 stock market crash triggered by the COVID-19 crisis (i.e., the time of the stock market crash). His important goal was to find out Bitcoin’s relative resilience and price behavior during a period of stock market crash. He focused on three indicators: the relative rating of each day realized volatility, each day realized volatility, and range-based realized volatility.
Here’s what he discovered:
Relative rating of each day realized volatility
- In the months before, during, and after the stock market crash in March 2020, Bitcoin’s return volatility was lower than that of about 900 stocks within the S&P 1500 and 190 stocks within the S&P 500.
- During the market crash, Bitcoin was less volatile than assets akin to oil, EU carbon credits and chosen bonds.
Daily realized volatility
- The last decade has seen a big decline in Bitcoin’s each day realized volatility.
Range-based realized volatility
- Bitcoin’s range-based realized volatility was significantly higher than the usual measure using each day returns.
- Its range-based realized volatility was lower than an extended list of S&P 1500 constituents in the course of the market crash.
Are these conclusions applicable to today?
Our methodology
We analyzed data from late 2020 to early 2024. For practical reasons, our data sources for certain assets differed from those of the unique study, and we decided to make use of standardized percentile rankings for easier interpretation. However, we examined the identical three indicators: relative rating of each day realized volatility1each day realized volatility2and range-based realized volatility3. In addition, for carbon credits, we used an ETF proxy (KRBN) as an alternative of the EU carbon credits that Mazur utilized in his study. The currency pair analyzed was BTC/USD.
Relative Daily Realized Volatility: An Updated View
In Exhibition 1higher percentiles indicate greater volatility relative to the constituents of the S&P 1500. From November 2020 to February 2024, Bitcoin’s each day realized volatility rank averaged the ~76th percentile relative to the S&P 1500.
Figure 1. Daily percentile rank of Bitcoin’s realized volatility in comparison with the S&P 1500
Sources and references: EODHD; grey areas represent market shocks and a better percentile value = higher volatility.
In subsequent market crises, Bitcoin’s relative volatility rankings showed higher spikes in comparison with the COVID-19-induced crash, but were mostly in similar ranges. As shown in, Annex 2In May 2020 and December 2022, Bitcoin was less volatile than the typical S&P 1500 stock price.
Figure 2. Daily realized volatility of Bitcoin during market shocks
Sources and references: Mazur (2022) and EODHD; the COVID-19 Crash Ranks and each day realized volatility are derived directly from the unique study. Rank 1 = highest volatility value; percentiles are inverted in order that higher percentiles = higher volatility value.
Figure 3. Daily realized volatility of Bitcoin in comparison with other assets during market shocks
Sources and references: EODHD, FRED, S&P Global, Tullet Prebon and Yahoo! Finance; the figures indicate the utmost each day realized volatilities for the required period.
Absolute each day realized volatility: An updated view
True to Mazur’s findings, Bitcoin’s volatility continued to trend downward, experiencing increasingly lower spikes. Between 2017 and 2020, there have been several periods with spikes that exceeded 100% annualized volatility. Data from 2021 onwards painted a special picture.
- 2021 peak: 6.1% (97.3% annualized) in May.
- 2022 peak: 5.5% (87.9% annualized) in June.
- Peak in 2023: 4.1% (65.7% annualized) in March.
Figure 4. Daily realized volatility over time
Source: EODHD.
Range-based realized volatility: An updated view
Consistent with Mazur’s findings, the range-based realized volatility was 1.74% higher than the each day realized volatility, although this was not entirely surprising given our chosen calculation. Bitcoin’s range-based realized volatility was ~79th percentile in comparison with the S&P 1500 average.
It is interesting, nonetheless, that real volatility based on ranges has not seen a proportional reduction in the intense peak values lately. The significantly higher ranges in comparison with Daily realized volatility (closing price above closing price)combined with media coverage that emphasizes movements between days over longer periods of time, suggest that these Discrepancy is a Main factor contributing to the perception that Bitcoin could be very volatile.
Figure 5. Range-based realized volatility over time and percentile rank in comparison with the S&P 1500
Source: EODHD. Note: Rank 1 = highest volatility value; percentiles are reversed in order that higher percentiles = higher volatility value.
Results
Of all Mazur’s conclusions, the finding regarding Bitcoin’s relative each day realized volatility has not been borne out in our evaluation, as its performance has deteriorated relative to other asset classes during market shocks. Conversely, most of Mazur’s findings, including Bitcoin’s each day and range-based realized volatility, still hold.
Relative Volatility Ranking: Decreasing Strength
- With regard to the market shocks that followed the COVID-19 crash analyzed within the study, Bitcoin’s each day realized volatility percentile rankings were comparable to those of the S&P 1500.
- However, Bitcoin’s each day realized volatility was higher than just about all other chosen asset classes and had the very best each day volatility during market shocks, aside from oil and carbon credits in the course of the Russia-Ukraine war.
Daily realized volatility over time: Increased
- In line with Mazur’s findings, we found that an extended time horizon helps us reduce cherry picking. For example, Bitcoin’s each day realized volatility has shown a gradual but significant decline over time, with lower peaks observed lately.
Range-based realized volatility: Increased
- On average, monthly range-based realized volatility has been 1.74% higher than each day realized volatility since November 2020.
- Bitcoin’s range-based realized volatility was still lower than several hundred names within the S&P 1500 on a monthly average basis.
The central theses
Our update to Mazur’s study found that Bitcoin just isn’t as volatile as previously thought, as evidenced by its percentile rating relative to the constituents of the S&P 1500, the discrepancy between its each day realized and range-based realized volatility, and the gradual decline in its each day realized volatility over time.
As Bitcoin gains wider acceptance and further regulation, the perception of its volatility will proceed to vary. This overview of Mazur’s research underscores the importance of approaching this topic analytically and with an open mind. Perceptions don’t at all times correspond to reality.
