Given its high volatility and extreme swings in value, Bitcoin has been dubbed the “King of the Swingers.”
However, the world’s largest and arguably most volatile cryptocurrency has been trading at around $20,000 for days and has not gone much higher than that since June.
This is bad news for traders and exchanges who profit from bitcoin’s wild price swings, and it opens the door for its main rival ether, which is preparing to ramp up its crypto competition by switching to a meaner and slimmer blockchain.
“Bitcoin is not dead; it’s just boring at the moment, so traders are already looking for alternatives,” said Martin Leinweber, digital asset product strategist at MarketVector.
According to data firm Coinglass, Bitcoin’s average 30-day volatility – a measure of how its price fluctuates over a given period – has dropped to 2.7% from over 4% in early July.
Even during the most volatile months of the “crypto winter” of low prices, that figure had remained significantly lower than 5% in 2022, a departure from the previous five years, when even periods of lower volatility were followed by price increases of up to 7%.
Similarly, CryptoCompare’s index, which uses bitcoin futures contracts to calculate how much prices are expected to fluctuate, is just over 77, down from more than 90 at the beginning of the year.
Bitcoin has previously experienced periods of lower volatility, primarily during depressed or dropping prices, with price fluctuations regularly coming back as trading activity increases.
However, this quiet period could be unique.
“This has been a relatively long period of decreased volatility; it’s now beyond anything we’ve seen in 2019 where these levels lasted around a quarter to a quarter-and-a-half,” said Stéphane Ouellette, CEO at crypto derivatives provider FRNT Financial.
Because of bitcoin’s current low volatility, MarketVector’s Leinweber observed increased trading for ether and its derivatives.
Undoubtedly, the price of ether, the second largest cryptocurrency with a market cap of approximately $190 billion compared to bitcoin’s $380 billion, has increased by 50% since the beginning of July, while bitcoin has remained flat.
According to data firm Messari, ether does not provide more price drama; it is far less volatile, with the highest level reached being just over 2% in March 2020, when the worst market rout due to the pandemic was still in progress.
But as it gets closer to its “Merge,” which is anticipated to happen later this month and involve a fundamental change to a system in which the production of new ether tokens becomes significantly less energy-intensive, it is currently soaking up a lot of the cryptocurrency buzz.
Narrower price swings may seem advantageous to long-term investors in conventional assets like stocks or bonds. However, this is not the case for many investors and significant figures in the bitcoin and crypto industries. For instance, exchanges generate revenue by charging trade fees; trading activity typically decreases as volatility declines.
Additionally, less volatile values present opportunities for cryptocurrency hedge funds, which typically trade on price fluctuations.
Consequently, the question of what is causing a decrease in bitcoin volatility arises.
One reason is that fewer people are willing to trade their coins due to the investor exodus from the larger crypto space.
Cryptocurrencies have had a challenging year as investors have sold risky assets in response to rising inflation, with bitcoin falling by about 60% and ether by about 55%. A primary lender’s bankruptcy and two significant meltdowns at major coins have reduced investor confidence in the industry.
Blockchain.com reports that the dollar value of bitcoin trading volumes on significant exchanges over seven days ranged between $127 million and $142 million, the lowest levels since October 2020. Similarly, data from the Block shows that bitcoin futures trading is at its lowest point since November 2020.
“The most elevated levels of volatility typically coincide with the greatest levels of interest in crypto,” said Ouellette added. “People got burned and are saying, ‘I don’t care about crypto right now.”