Photo by André François McKenzie on Unsplash

Frequently Asked Questions

What is The Bitcoin Volatility Index?

This site tracks the volatility of the Bitcoin price in US dollars.

What is volatility?

Volatility is a measure of how much the price of a financial asset varies over time.

Why is volatility important?

Volatility means that an asset is risky to hold—on any given day, its value may go up or down substantially. The more volatile an asset, the more people will want to limit their exposure to it, either by simply not holding it or by hedging. Volatility also increases the cost of hedging, which is a major contributor to the price of merchant services. If Bitcoin volatility decreases, the cost of converting into and out of Bitcoin will decrease as well.

What definition of volatility does The Bitcoin Volatility Index use?

The standard deviation of daily returns for the preceding 30- and 60-day windows. These are measures of historical volatility based on past Bitcoin prices. When the Bitcoin options market matures, it will be possible to calculate Bitcoin's implied volatility, which is in many ways a better measure.

How volatile is Bitcoin relative to gold and other currencies?

For comparison, the volatility of gold averages around 1.2%, while other major currencies average between 0.5% and 1.0%.

The chart above shows the volatility of gold and several other currencies against the US Dollar. Series marked with an asterisk are not directly comparable to series not so marked because fiat currency markets are closed on weekends and holidays, and therefore some price changes reflect multiple-day changes. Such multi-day changes in price are excluded from analysis, and therefore, the 30- and 60-day metrics for these series use fewer than 30 and 60 data points. They are presented for entertainment purposes only.

What is the pricing source?

The Bitcoin Volatility Index is powered by CoinDesk for Bitcoin prices, and by FRED® for other series pricing data.

Any other coins?

Yes, we have pages for Litecoin Volatility and Ethereum Volatility.

The Latest on Bitcoin Volatility

Bitcoin has a reputation for being a highly volatile and speculative asset, but the digital currency has shown remarkable signs of stability of late. In fact, Bitcoin volatility hit a 17-month low in early October as the cryptocurrency traded in a tight range.

While some experts believed that this was a sign of the cryptocurrency maturing, there were some who were of the opinion that this was the lull before the storm. However, this period of volatility came to an abrupt end mid-November as Bitcoin prices crashed from a stable point of around $6,400 to less than $5,400.

Now, it is likely that such a move is a result of several short-term events. For instance, the crash could be in response to the hard fork scheduled for November 15 that saw Bitcoin Cash splitting into two digital currencies – Bitcoin ABC, which is the core Bitcoin Cash, and Bitcoin SV, which is short for “Satoshi’s Vision.”

Additionally, the recent sell-off in tech stocks could be spilling over into the crypto markets and disrupting the recent period of stability witnessed by the cryptocurrency. However, it won’t be surprising to see Bitcoin getting back to its stable levels post the latest crash thanks to Bakkt.

Introducing Bakkt

Intercontinental Exchange, the parent company of the New York Stock Exchange, had announced its intention of creating “an open and regulated, global ecosystem for digital assets” in August this year. This new ecosystem will be known as Bakkt and it plans to make Bitcoin and other cryptocurrencies accepted and trusted globally.

The involvement of a name such as the Intercontinental Exchange will be a big deal for Bitcoin as demand for the cryptocurrency from institutional investors will increase. In fact, Bakkt will also be backed by Microsoft and Starbucks, among others. The new company will use Microsoft’s cloud solutions to help customers buy, sell, store, or spend cryptocurrencies globally.

Using Microsoft’s Azure platform, Bakkt will launch one-day Bitcoin futures contracts, as well as a physical warehouse. The Bakkt Bitcoin Daily Futures contract will be settled physically for Bitcoin using the Intercontinental Exchange’s Digital Asset Warehouse. On expiry of the contracts, investors will receive Bitcoin instead of cash, which is unlike the futures that the CME and the CBOE offer and settle in cash.

Bakkt has applied for approval from the U.S. Commodity Trading Futures Commission it will start offering the futures contract as soon as it receives approval. Starbucks, on the other hand, will expand payment options for its customers through Bitcoin. It is believed that Starbucks will allow customers to convert their cryptocurrencies such as Bitcoin into fiat money to make payment at its locations, boosting Bitcoin adoption in the process.

The Impact

In all, Bakkt is looking to serve a wide range of stakeholders in the cryptocurrency space that include retail investors, institutional investors, and merchants. By getting CFTC approval, Bakkt will bring a level of regulation to Bitcoin that will encourage participation of big institutional investors. As a result, the digital currency will witness huge trading volumes thanks to increased interest from Wall Street that could bring money from hedge funds, mutual funds, and pension funds into the Bitcoin space.

Meanwhile, merchants such as Starbucks are creating a market where cryptocurrencies such as Bitcoin can be used. This means that Bakkt will bring more liquidity into the Bitcoin realm, which should eventually bring down volatility as the cryptocurrency will come closer to mainstream adoption.