Volatility

Bitcoin’s volatility has come under a lot of scrutiny over the past. This first came to my attention when I found the following chart in a report by Goldman Sachs.

Vicious Volatility

According to this graphic, bitcoin’s volatility is more than 50 times greater than the volatility of several other currencies, including the Argentine Peso, known to be very volatile. This piqued my interest, and I began to perform my own volatility analysis on bitcoin’s price (in USD). First, I found that volatility has been decreasing over time in a logarithmic fashion.

Volatility Graph

However, due to the low R-squared value and the clear cyclical fashion of bitcoin’s price, I decided to investigate the volatility of the volatility. This showed me that generally the decrease in volatility has been stable; however, there have been certain spikes associated with major news events, such as the shut-down of the Silk Road. As Bitcoin matures as a currency, these spikes should subside, and the volatility of Bitcoin should stabilize.

Volatility of Volatility Graph

In the future, I hope to also examine the volatility of bitcoin’s price in comparison with well-known extremely volatile currencies such as the Russian Rouble.

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