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Crypto Long & Short: The Pattern in Bitcoin’s Volatility
Bitcoin’s volatility has been moving in a downward direction, and the price of the currency seems fixed in a band between $50,000 and $60,000. Is the current market for bitcoin a temporary lull between lurches? Or is it a long-term trend toward lower volatility that could change the way bitcoin is perceived?
The answer is, it’s too early to tell. The chart above shows bitcoin’s volatility has been on a steady decline. (Ether and the S&P 500 are included as references.) However, it’s still in an approximate mid-range, historically.
You’re reading Crypto Long & Short, a newsletter that looks closely at the forces driving cryptocurrency markets. Authored by CoinDesk’s head of research, Noelle Acheson, it goes out every Sunday and offers a recap of the week – with insights and analysis – from a professional investor’s point of view. You can subscribe here.
Related: Tether Passes $50B Market Cap
As of Sunday morning, this past week’s correction hadn’t changed that. Bitcoin’s price remains roughly in a band between $50,000 and $60,000, and with this week’s dip marking the second time it’s rocked between the minimum and maximum of that range, its volatility is still roughly in the middle.
Using the table below as a guide, bitcoin’s stretch of middling volatility is likely to continue. At 43 days, it is still rather young, as these things go.
The data in the table is based on dividing bitcoin volatility into three ranges: high, mid and low. High is volatility at or above 100%. Mid is volatility at or above 50%, and below 100%. Low is volatility below 50%. Volatility is the 30-day standard deviation of daily log returns, annualized at 365 days of trading.
These ranges aren’t entirely arbitrary. Since October 2014, bitcoin volatility’s top tercile has been above 79% and its middle third has started at 51%.
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Looking at bitcoin volatility in this way shows a pattern in the duration of volatility cycles. In the first two years on the table, bitcoin volatility cycles tended to be shorter, less than 50 days in duration. They lengthened in 2016 to 2018, then returned to shorter cycles in 2019.
As of Saturday, bitcoin’s volatility was just over 50%, putting it at the low end of our mid-range for volatility. It’s been in the mid-range for 43 days, following a period (32 days) of high volatility that ended March 13. In the current environment, it hasn’t yet reached the average duration of a volatility cycle – at least not as we’re defining them here.
If recent norms persist, bitcoin’s volatility may be disappointing both to traders antsy for a break and technologists hoping for long-term lower volatility that could make bitcoin more “useful” as a currency. It may feel like bitcoin has been in stasis for a long time, but historically speaking this could be a long haul.
– Galen Moore
Chain Links
This week saw two notable appointments that underline the “institutionalization” of crypto markets:
Former Acting Comptroller of the Currency Brian Brooks was appointed CEO of crypto exchange Binance.US.
Former CFTC Chairman Chris Giancarlo was appointed to the board of crypto lender BlockFi.
We continue to see investment pour into crypto market infrastructure from traditional investment firms. This past week:
Baillie Gifford , one of the U.K.’s most prominent asset managers, invested $100 million in crypto exchange and wallet provider Blockchain.com.
RIT Capital Partners, a U.K.-based investment trust founded by Lord Jacob Rothschild of the prominent Rothschild banking family, made an investment of undisclosed size in U.S.-based cryptocurrency exchange Kraken.
Coinbase will list the stablecoin tether (USDT) on its professional trading platform, allowing investors to deposit immediately and to begin trading next week. TAKEAWAY: This move is a big deal, as it effectively legitimizes tether, which had been struggling with reputation issues related to the stablecoin’s backing and the internal handling of funds. Earlier this year, the NYAG settled its enquiry into the stablecoin’s issuing company and sister exchange, mandating periodic attestations starting in May 2021. Tether acts as a significant support to market liquidity, and concerns that regulatory or confidence problems could deal a blow to overall market sentiment have been weighing on the market for some time. That Coinbase’s first new token listing after going public should be a stablecoin previously mired in controversy sends a strong signal of support to the market’s preference for a competitor to the USDC stablecoin, which is managed by a Circle-Coinbase partnership.
New York-based Signature Bank added $3.77 billion in non-interest bearing deposits in Q1, which shows an acceleration of deposit growth – in Q4 the growth was $2.5 billion. TAKEAWAY: Figures like these will signal to other banks that the crypto industry is currently a source of strong balance sheet growth and could encourage more of them to offer service to crypto companies. Over the years, crypto companies have struggled to get basic banking services – a more robust banking service offering for crypto companies, perhaps even competition for their business, will bring new operating efficiencies. That in turn will make these companies even more attractive to investors, which will further support innovation.
Cryptocurrency-focused financial services firm Galaxy Digital is in advanced discussions to buy crypto custodian BitGo, according to sources. TAKEAWAY: Yet another gripping scoop from my colleague Ian Allison. Whether it goes ahead or not, this represents powerful positioning in the crypto prime broker race.
San Francisco-based trading tech firm X-Margin and cryptocurrency custody provider Fireblocks are developing a credit management system that gives lenders insight into borrower positions across platforms while preserving privacy. TAKEAWAY: This is intriguing in that it brings a technology angle to the prime brokerage business, with the potential effect of reducing lending risk and collateral requirements, which in turn should free up liquidity.
A bitcoin ETF managed by 3iQ and CoinShares is now trading on the Toronto Stock Exchange under the symbols BTCQ (CAD) and BTCQ.U (USD). TAKEAWAY: For those keeping score, Canada now has four bitcoin ETFs and four ether ETFs. The U.S. still has none.
Speaking of 3iQ, the company’s CEO told Bloomberg that it is aiming to raise over $200 million from the dual listing of its 3iQ Coinshares bitcoin exchange-traded fund in Dubai. TAKEAWAY: The potential is indeed high, since it will be the first cryptocurrency fund to go public in the Middle East.
Switzerland-based investment product provider 21Shares is launching ETPs for the native cryptocurrencies of Stellar (ticker: AXLM) and Cardano (ticker: AADA) on the Swiss SIX Exchange. TAKEAWAY: It’s curious that Europe has such a wide range of crypto-based assets listed on exchanges that investors of all types can access through their brokers, while the U.S. has none. (Unless you count MicroStrategy, but that’s a different story.)
Bitcoin services firm NYDIG has bought commercial lender Arctos Capital, which provides financing solutions to bitcoin miners and other crypto firms. TAKEAWAY: It is fascinating to see the growing institutional interest in the bitcoin mining industry, which points not only to greater sophistication in mining financing and operations, but also to considerable growth ahead in North American mining operations.
– Noelle Acheson
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How to Start Your Crypto Journey in 2021
In 2021, the crypto bull is running hard, with Bitcoin’s price soaring higher than $60,000. Old records are being broken and new ones created, while big-time influencers are increasingly turning to cryptocurrencies.
Considering Elon Musk’s activities on Twitter to Micro Strategy’s radical BTC acquisition, the wind is certainly blowing in favor of the global blockchain-cryptocurrency community.
On the inside, as well, innovations and research of the technology’s betterment are faring better than ever. As blockchain ecosystems become more diversified, and simultaneously, more robust, they also become more reliable in terms of value.
Sidechains and Parachains, among others, are substantially mitigating scalability and interoperability concerns.
Gradually, privacy and user autonomy are being etched in the fundamentals of business processes, making them more relevant for the digital future.
Long story short, the blockchain-cryptocurrency industry is rapidly proliferating. It’s witnessing parabolic growth, as some might argue, and with good reason.
Not just Bitcoin, but the value of altcoins such as Ethereum has risen 50% higher, while yet others have witnessed a two-fold boost.
In more ways than one, now is the time to enter this domain, in case you haven’t already. To help, this article discusses some ways in which you can start your crypto journey right away.
Ways of Getting Into Cryptocurrency
In this article, we will focus on the buying aspect, but what’s less obvious is that you might also get paid in crypto. Furthermore, you can win cryptocurrencies as rewards from bounties, raffles, and so on.
Such alternatives, however, involve substantial contingency and risk, which restricts their relevance to a niche and technically-competent subset of crypto users.
Another aspect to consider before we proceed—what can you do with cryptocurrency? In other words, why should you even care? Even half-a-decade ago, cryptocurrencies were predominantly for use by techies.
Payment addresses, for instance, were long, 60-character strings of numbers and alphabets. That apart, only a few tech-savvy merchants or individuals accepted payments in crypto-assets.
Today, the scenario has changed manifolds. Several business giants—Microsoft, AT&T, Burger King, and Namecheap, among others—have already integrated crypto-based payment methods.
SMBs around the globe are increasingly getting on board. Furthermore, with innovations in Decentralized Finance (DeFi), crypto-based financial services for lending, borrowing, derivatives, trading, and so on, are also available and evolving.
Apart from paying with crypto, you can also generate passive income from your assets. In fact, new cryptocurrency use-cases are becoming realities almost every other day, but for now, let’s not get stuck on this point.
Similar to using cryptocurrencies, you can buy them in more than one way. In the following paragraphs, we highlight three broad and generic methods of getting into crypto.
Digital Wallets
Futuristic digital wallets unify most of the above pathways to the world of crypto, thereby easing the journey for aspirants. While there are several solutions in this domain, for example Skrill’s digital wallet where customers can pay quickly, enable card, bank and local payment methods all in one place.
Exchange & OTC
Crypto exchanges are platforms where users can buy, sell, and trade cryptocurrencies using fiat, digital, or other compatible currencies. Based on their underlying framework and network policy, these exchanges may either be centralized and custodial or decentralized and non-custodial.
Binance, Kraken, and bitFlyer are some examples of the former, while Uniswap and AlphaEx fall in the second category.
Over-the-Counter (OTC) trading is another way of buying crypto. However, unlike exchanges, counterparties in this method necessarily interact directly. Moreover, OTC trades are usually leveraged for high-value crypto deals.
Bitcoin ATM
Bitcoin ATMs work similarly to ordinary ATMs, except that they accept deposits by cash or card in return for Bitcoin (BTC). The uniqueness of this method lies in the fact that it allows individuals to buy BTC using cash, which is not possible on digital platforms.
Peer-to-Peer (P2P) Trade
Ās the name suggests, P2P trades are direct crypto-based interactions between two counterparties, without involving any facilitator or intermediary.
Essentially, this method stands truest to the original principles of cryptocurrency. Presently, several P2P trading platforms are already available for users across the globe, with more definitely in the making.