Bitcoin’s price has reached unprecedented levels of stability during the latter half of October 2018, so far at least. After some volatility in the middle of October, the price of Bitcoin has settled into a narrow trading between USD 6,350 and USD 6,500. The daily volatility of Bitcoin fell below USD 100 on 19 October and continues to be below that threshold as of 26 October. This is the first time an entire week has had such low volatility since at least April 2017.
In April 2017 during that low volatility week, the average daily volatility was USD 33 but due to the Bitcoin price being USD 1,200 that represents 2.75% volatility. The 19-26 October 2018 period has an average daily volatility of USD 56, which is 0.86%. Therefore, the current stability of Bitcoin’s price can be considered unprecedented, especially since Bitcoin can often have daily price swings of 5-10% or more.
This stability makes using Bitcoin as a currency more viable. Under normal circumstances when Bitcoin’s price is quite volatile, merchants are pressured to sell Bitcoin immediately so they do not risk losing money relative to fiat. Now that Bitcoin is stable, the anxiety from holding Bitcoin has decreased and, therefore, merchants and users do not have to worry about selling Bitcoin immediately, at least if these stable conditions persist.
These levels of stability are less preferable for day traders, however, who depend on volatility to make money, and are actually a source of volatility themselves. For example, the BitMEX crypto derivatives exchange and its users make the most profit when Bitcoin is rallying or crashing, via short or long positions with up to 100X leverage. Due to the lack of volatility, BitMEX’s daily trading volume has declined to USD 800 million, far less than its typical daily volume of USD 2 billion or more. There was a day in July 2018 when BitMEX had volume in excess of USD 8 billion; current volume as of 26 October is only 10% of that.
This stability in the Bitcoin market could be a solid indicator that the market bottom is here. It is likely that eventually, Bitcoin’s price will begin to rise off this bottom. Perhaps the launch of physical Bitcoin futures on Bakkt in December 2018 will provide the push that will start the next Bitcoin rally.
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