The 12-month volatility of the flagship crypto hit the lowest levels in 12 years. Thus, in January, the volatility indicator fell to 45% compared to 63% in the year-earlier period. What impact could this have? Can it be assumed that the crypto market has reached a greater degree of stability?
The decline in cryptocurrency volatility could be due to a number of factors:
1. Lower volatility can be read as a sign of market maturity. The market is becoming less exposed to price fluctuations, thus attracting a larger number of institutional investors and higher confidence in cryptocurrencies.
2. The easing of volatility could mean that institutional investors have started to jump in. Institutional players often prefer more stable and less volatile assets as this allows them to build long-term investment strategies with greater confidence.
3. A decrease in volatility could translate into fewer speculative transactions in the crypto marketplace due to the increased participation of long-term investors and the establishment of more stable trends.
4. The participation of institutional players could also impact volatility levels in the cryptocurrency market. Increased participation by institutional investors may lead to lower volatility as a result of more conservative trading strategies, which, in turn, could be associated with the use of futures and options.
To summarize, bitcoin is transforming from a speculative asset into a more reliable and predictable investment tool. This is a key step towards broad-based acceptance of bitcoin in traditional finance. ETFs have reshaped the bitcoin investment landscape. However, softer volatility does not necessarily mean market stability. The cryptocurrency market, even with reduced volatility, still remains complex and considerably exposed to external factors, including market news, changes in the regulatory environment, large-scale trading activities and the adoption of new technologies. Therefore, in this context, stability should not be regarded as an absolute concept and the cryptocurrency market still remains in a state of flux.