The bitcoin volatility index

The Bitcoin Volatility Index

Latest 30-Day Estimate
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Latest 60-Day Estimate
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Bitcoin Volatility Time Series Charts

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Bitcoin Price and Volatility

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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.

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Bitcoin Volatility Index (BVI)

By: Ofir Beigel | Last updated: 1/12/21

Bitcoin is one of the more volatile assets you can invest in today. This post displays Bitcoin’s volatility index and how to measure it.

Bitcoin Volatility Index Summary

The Bitcoin volatility index measures how much Bitcoin’s price fluctuated on a specific day (relative to its price). The higher the volatility, the riskier the investment since it’s hard to predict what the price will do.

Bitcoin Volatility (measured by % of change)

last 30 day estimate

last 60 day estimate

That’s the Bitcoin volatility index in a nutshell. For a more detailed explanation about Bitcoin’s volatility keep on reading, here’s what I’ll cover:

1. Is Bitcoin Volatile?

Yes, Bitcoin is considered relatively volatile, but it really depends on what you compare it to. Bitcoin’s volatility is a measurement of how much Bitcoin’s price fluctuates, relative to the average price in a given time period.

Volatility measures past performance of price and is used to predict how likely it is that the price will change dramatically. The higher the volatility – the riskier the asset.

2. Why is Bitcoin so Volatile?

Usually, the smaller market cap an asset has, the more volatile it will be. Imagine throwing a rock into a small pond. Now take the same rock and throw it into the ocean. The rock will have much more effect on the pond than on the ocean.

In the same manner, Bitcoin (the small pond for now) is more volatile (i.e. affected) by everyday buy / sell orders (the rock).

Today, Bitcoin’s market cap is around $350 billion. In comparison, gold’s market cap is around $3 trillion (over 8x larger).

Market cap is calculated by multiplying the number of Bitcoins in circulation by the price of each Bitcoin.

Since the amount of Bitcoins in circulation is limited (21 million) and we’ve already reached 88% of the total amount, the major influence on Bitcoin’s market cap will be through price changes.

Once the price increases and brings the market cap to a higher level, price movements will become smaller.

In short, a higher price = higher market cap = lower volatility.

3. How to Calculate Bitcoin’s Volatility?

Volatility is measured by sampling how far away Bitcoin’s price goes from the price at a fixed point in time. In our case – Bitcoin’s opening price on a specific day.

Bitcoin’s daily volatility formula is actually the standard deviation of Bitcoin’s price.

The standard deviation is calculated as follows = √(Bitcoin’s price variance).

Bitcoin’s price variance is calculated as follows:

• Sample Bitcoin’s price at different time points throughout the day – the number of samples is N
• Calculate: (Bitcoin’s opening price – Price at N)^2
• Sum up all the results = ∑(Bitcoin’s opening price – Price at N)^2
• Divide the results by N = ∑(Bitcoin’s opening price – Price at N)^2 /N
• This is the Bitcoin’s variance

Bitcoin’s daily volatility = Bitcoin’s standard deviation = √(∑(Bitcoin’s opening price – Price at N)^2 /N).

For a general timeframe volatility calculation, use the following formula:

√timeframe * √Bitcoin’s price variance

For example, the annualized volatility for Bitcoin would be √365 * Bitcoin’s daily volatility.

The monthly volatility would be √31 * Bitcoin’s daily volatility and so on.

What Units is Bitcoin’s Volatility Measured In?

In the example above we’ve used Bitcoin’s price to measure the standard deviation. Therefore, the volatility is measured in US dollars. If you want the volatility to be displayed in percent, you’ll need to recalculate the variance in percent using the following formula:

• Sample Bitcoin’s price at different time points throughout the day – the number of samples is N
• Calculate the deviation in percent: ((Bitcoin’s opening price – Price at N)/Bitcoin’s opening price*100)^2
• Sum up all the results = ∑((Bitcoin’s opening price – Price at N)/Bitcoin’s opening price*100)^2
• Divide the results by N = ∑((Bitcoin’s opening price – Price at N)/Bitcoin’s opening price*100)^2 / N
• This is the variance as a percentage

The square root of the variance in percent will be the standard deviation, or volatility, as a percentage.

4. Frequently Asked Questions

What Affects the Price of Bitcoin?

Bitcoin’s price is affected by supply and demand. The more demand there is for Bitcoin, the higher people will be willing to pay for it – hence the price will go up.

If there’s no demand for Bitcoin, people will be willing to get rid of it for a lower price – hence the price goes down.

The term “Bitcoin Price” refers to the last price of a trade conducted on a specific exchange. Therefore, Bitcoin’s price on Bitstamp will be different than Bitcoin’s price on Coinbase, since both exchanges have different trades going on.

Usually the price differences between exchanges are minimal, however, in some cases a gap can develop, allowing for Bitcoin arbitrage opportunities.

5. Conclusion

Bitcoin is still considered an extremely volatile asset, which means that 5%-10% price changes on a single day aren’t uncommon.

Bitcoin’s high volatility makes it difficult for businesses to accept it as payment, and also makes it very nerve wracking for a lot of investors.

On the bright side, high volatility means that experienced traders can make a nice profit from trading Bitcoin. As Bitcoin matures and becomes more mainstream, its price will rise and its volatility will decrease accordingly.

Do you think Bitcoin will ever stop being volatile? Let me know in the comment section below.

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The Bitcoin Volatility Index – Is it a Good Time to Invest?

The Bitcoin Volatility Index is a charting tool that helps investors observe and predict the future price movement of Bitcoin. The graph below indicates BTC’s volatility compared to a 24hr timeframe (blue line) and to a 7-day timeframe (orange line).

Is Bitcoin a volatile investment?

Yes, Bitcoin is one of the most volatile investment options currently available. When compared with the stock market or precious metals, the difference is enormous.

For example, a sudden 10% drop in a popular stock option’s value, would be a catastrophic event that is almost never seen in such markets.

However, with Bitcoin, this is a normal day in the market.

How does a Volatility index work?

The Bitcoin Volatility Index is a tool that measures the fluctuation of the coin’s value, compared to the average value of a given timeframe.

More specifically, volatility calculates past price-action and uses this information to predict (in %) the potential of a sudden price change. A higher the % indicates a higher investment risk.

Why is Bitcoin so volatile?

When an asset is relatively new to the market and still has a small market cap, it will naturally be more volatile.

To give an example, let’s take a look at gold. The precious metal has been used as a store of value since barter times and currently has a market cap of $7,2 Trillion dollars.

Now, try to compare this to Bitcoin. The digital asset has a mere $170 billion dollar market cap and was only recently introduced to the world (2009).

It is only natural that Bitcoin, as well as other cryptocurrencies, will be a lot more volatile than gold.

As demand for Bitcoin grows, so will the coin’s market cap. This is because Bitcoin only has a limited supply of coins. With an increase in demand, there will be a growth in the price, and thus in the total market cap.

The good thing is – with a higher market cap, large-scale buy/sell orders will not affect the market as much.

In other words, the higher the price of Bitcoin, the lower its volatility.

How to calculate Bitcoin’s Volatility?

The percentage of volatility is measured by calculating the fluctuation of Bitcoin price from a specific price point at a particular timestamp. For BTC, this is the opening price tag of the coin at the beginning of the day.

Going in more detail, the formula used to calculate the daily volatility of Bitcoin is based on the coin’s standard price deviation.

This standard deviation is calculated by finding the square root (√) of Bitcoin’s price variance.

Having said that, here is how you calculate Bitcoin’s price variance.

1. Timestamp the price of Bitcoin at different moments throughout the day(the number of samples taken into consideration is measured as X). Then calculate as follows:
2. (Bitcoin’s price at the start of the day – Price at X)^2
3. Sum up all the findings = ∑(Bitcoin’s price at the start of the day – Price at X)^2
4. Divide your findings by X = ∑(Bitcoin’s opening price – Price at X)^2 /X

Knowing the above, we can now use the following calculation to measure the volatility of Bitcoin:

Bitcoin’s standard deviation = √(∑(Bitcoin’s opening price – Price at X)^2 /X).

How can I best use the Bitcoin Volatility Index?

This tool is great for two reasons:

• To increase your chances of “buying the dip” and thus increase your success of swing trading.
• To verify if your trading-related emotional distress is valid or not – to make data-driven trading decisions.

How does the volatility of Bitcoin affect other cryptocurrencies?

When Bitcoin experiences large price fluctuations that affect its volatility – for example, if a Bitcoin whale sells its coins – the whole market experiences volatility as well.

This happens mainly because of two reasons:

• Bitcoin is the main trading pair for most cryptocurrencies and is thus used the most when trading across exchange platforms
• Bitcoin’s market value currently forms more than 66% of the total cryptocurrency market cap. It is only natural that a large fluctuation in its price will cause investors to create buy/sell orders that include different cryptocurrencies as well.

Over the last 2 years, we have seen two prevailing trends as far as crypto volatility is considered:

• When Bitcoin’s value increases, most “altcoins” do not follow its positive price traction. Instead, they remain stagnant or grow to a lower degree
• When the price of Bitcoin experiences a sudden downturn, most altcoins seem to follow the same direction.

The volatility of Bitcoin in 2020

Remember – volatility is not necessarily a bad thing. Bitcoin be very volatile towards both a positive and negative direction.

That being said, 2020 holds a lot of exciting events that will affect the volatility of Bitcoin’s price.

First off, the BTC network will experience a halving in mining rewards, during the second week of May 2020. This event has been very positive for Bitcoin’s price in the past, and the coin saw a large price appreciation shortly after it.

Second, there are undergoing efforts to bring Bitcoin to the mainstream, making it a viable payment option:

• Facebook is currently dealing with regulatory issues to create its own cryptocurrency – Libra
• Governments and central banks are creating their own blockchain-based tokens
• Jack Dorsey, the founder of Twitter, recently won a patent for an app that will integrate Bitcoin payments into its merchant payment solution – Square
• Brian Armstrong, the founder of Coinbase, recently won a patent for an upcoming project that will help people send BTC to email addresses instead of Bitcoin wallets.

Conclusion

The Bitcoin volatility index is a great tool to use, whether you are an active trader or simply an observer of the market.

While the current high volatility of Bitcoin makes it difficult for institutional investors and merchants to accept it, most investors can increase their profits.

This is a great approach as we wait for more mainstream acceptance of the popular cryptocurrency – and thus a decrease in its volatility.

We hope that this guide helped you understand the mechanics and purpose of the Bitcoin volatility index. If you have anything to add or simply want to ask a question, feel free to leave a comment below.

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