When analyzing markets, there are those who prefer one or the other to invest. However, a latent feature in traditional market investors is to believe that Bitcoin is just a synonym for extreme price volatility. Although this is not totally false, it must be admitted that there are traditional products that are also very volatile such as oil.
Given this, we must underline the way in which the price of West Texas Intermediate (WTI) oil in a month had historical volatility. Specifically, it stood at 105.3% on February 10, after reaching a maximum of four months of 119.6% at the end of January.
Meanwhile, Bitcoin’s historical volatility recently fell to 42.3%, the lowest level since September, according to Skew Markets.
Historical volatility of oil vs. Bitcoin
The historical volatility indicator measures how much the prices of an asset have varied in the past. This is calculated from the standard deviation of the daily movements of the prices of the previous month, usually for a period of 30 days. It is indicated in annualized terms.
However, it does not measure the direction and only tells us how the price is deviating from its average. Thus, with oil currently reporting greater historical volatility than Bitcoin, it seems safe to say that “black gold” has recently been more volatile than Bitcoin.
WTI volatility increased sharply from 38.7% on January 6 to a maximum of 119.6% on January 27. Bitcoin volatility has steadily declined from 66% to 42% in the four weeks until mid-February.
The peak in oil price volatility was due in large part to two important news. The first was the great price movement following the increase in tensions between the United States and Iran.
We all know that on January 3, the United States attacked an Iranian base in Iraq, killing a high military commander and injecting geopolitical uncertainty into the markets. In addition, fear increased after an Iraqi attack on an American base.
However, the fear of a total war faded rapidly with the news that there had been no US casualties, which caused oil prices to drop to $ 60 the same day.
Second, uncertainties continued in the following weeks, especially because of fears caused by the Coronavirus. These had an important effect on market sentiment. The WTI posted a minimum of $ 49.50 two weeks ago before regaining its balance.
While the WTI witnessed wild changes in both directions, the Bitcoin market was relatively quiet with a strong directional bias.
Bitcoin recorded an almost straight rally from $ 6,850 to $ 10,500 in six weeks until February 13. Therefore, it is not surprising that the historical volatility of the leading cryptocurrency is lower than that of oil.
It is worth mentioning that this is not the first time that oil has been more volatile than Bitcoin. For example, in mid-September 2019 until mid-October the historical volatility of the WTI soared from 60.9% to 133%. Before that, however, Bitcoin was consistently more volatile than oil.
Looking ahead, the volatility of Bitcoin prices may increase as crypto whales, or addresses with balances ranging from 1,000 BTC to 10,000 BTC, resume their cryptocurrency accumulation. Therefore, it is difficult to say if Bitcoin would continue to have lower volatility than oil and less on the eve of halving.
Degree in Liberal Studies from the Metropolitan University. Lover of innovation and believer of technology for the future.