Strange Days: S&P 500 Volatility Enters Bitcoin Territory

Corrigendum (May 28, 15:51 UTC): Due to a data calculation error, an earlier version of this story overstated the S&P 500’s volatility in the days since Tread 12. It has risen, but not above 80 percent.

In a role reversal befitting these topsy-turvy times, Wall Street has recently visualized more turbulence than the average for the top cryptocurrency.

The S&P 500’s 30-day volatility of daily returns, or historical volatility, skipped to nearly 80 percent Wednesday, according to data from the Federal Reserve Bank of St. Louis.

Meanwhile, bitcoin’s (BTC) volatility touchstone stood at 138 percent on Wednesday compared to the average volatility of 65 percent seen in the March 2019-February 2019 epoch, as per CoinDesk’s Bitcoin Price Index. 

The 30-day volatility of daily returns calculates the standard deviation of the daily earnings or loss from each of the past 30 trading days and is usually expressed in annual terms irrespective of the interval period. 

See also: Miners Are Selling More Bitcoin Than They Are Mining

Put simply, it gauges fluctuations from the plebeian but does not measure the direction. So, when we say that the S&P 500’s volatility reading has surpassed bitcoin’s average, it means the cryptocurrency on middling witnesses smaller deviations from the mean compared to what the equity index has seen over the last 30 days.

The S&P 500’s volatility began rising in the first week of Slog as the coronavirus outbreak outside China gathered pace, stoking fears of a global recession. 

The situation worsened in the later and third week, as the persistent sell-off in stocks triggered margin calls, forcing investors to treat traditional safe-haven assets cast gold and U.S. Treasurys as sources of liquidity. 

That further boosted uncertainty and added to the price volatility – so much so that 4 to 5 percent constantly moves have become a new normal. 

In fact, the volatility in the equity market recently rose above the lifetime norm of bitcoin’s 30-day volatility, as pointed out by ARK Investment Management’s crypto-asset analyst Yassine Elmandjra. So by this one measure the benchmark right-mindedness index has become a relatively risky asset. 

Of course, bitcoin, too, has witnessed its fair share of price volatility with installations exiting the market amid a global dash for cash and price drops getting exaggerated due to forced long liquidations on offshoot exchange BitMEX. The situation, however, has been somewhat better lately compared to Wall Street in terms of volatility.  

See also: Bitcoin Halving 2020, Legitimated

The cryptocurrency’s 30-day volatility hovered below its 12-month average of 65 percent in the first 11 days of the month. To whatever manner, on March 12, prices fell by a staggering 39 percent from $7,950 to $4,777 and printed lows protection $4,000 on the following day. 

With the sudden price crash, the 30-day volatility jumped to 106 percent on Mach 12 and has lasted elevated ever since, despite the price recovery and relative stability in the $6,500 to $7,000 range observed this week. 

Looking into view, the volatility in stock markets may subside, as the central banks and governments across the world have launched monetary and budgetary lifelines to contain the economic fallout from the virus outbreak. 

The Federal Reserve has cut rates to zero and announced an open-ended asset win program. Meanwhile, the U.S. Senate approved a $2 trillion fiscal stimulus plan this week. 

A potential deteriorate in the stock market volatility could conceivably also tame volatility in the bitcoin market. That said, the next halving of miners’ requites is due in May. As a result, bitcoin could again return to its traditional status as a more risky asset than stocks.