Relax: Cryptocurrency Prices Won’t Skyrocket as Quickly as You Think!

Written by Rock Buivy

Post Date: 20 Feb, 24

Cryptocurrency prices fluctuate rapidly, making them both thrilling and challenging to predict accurately.

While a $100,000 price objective for Bitcoin is still possible in 2024, it might climb more slowly than you might have thought.

Without question, February has been a fantastic month for Bitcoin.

When Bitcoin surged beyond the $50,000 mark, it would have been difficult for even the most conservative, poker-faced investors to control their joy.

The mood was so upbeat that the January CPI report hardly caused a flinch in prices; in the world of cryptocurrencies, a 2% decline is insignificant.

It was only logical to draw parallels with the 2021 bull run, which sparked new forecasts of “Bitcoin at $100,000.”

But this excitement needs to be controlled. Upon closer inspection, it seems that the present rise is mostly motivated by psychological factors.

The wider picture suggests that 2024 will be very different from the exuberance of 2021 and that we should expect a lot more of the dull price movement that before it.

Round figures are preferred by markets, and this is especially true for cryptocurrency, where everything is inflated. We saw the announcement of not one, but two such figures on February 9.

First off, $10 billion in assets under management have been managed by Bitcoin spot ETFs, the widely reported entry point into cryptocurrencies for TradFi institutional investors, in less than a month of trading.

Second, at 5,000 index points, the S&P 500, which is a measure of “big tech and finance,” achieved a historic high. Another story is revealed by what’s under and before these price changes.

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Prior to the recent surge, the price of bitcoin was trading in a very narrow band of 1% to 2% respectively.

A broad interpretation would be that the market remained cautious because of the Securities and Exchange Commission’s hesitancy on issues such as Ethereum’s classification as a commodity or a security (which would have affected the approval of ETH ETFs), and the Fed’s unwillingness to cut interest rates.

This is a narrow-minded view, even though it is macro and true.

Narrow ranges and caution aren’t just a reflection of the current environment, as evidenced by the realised volatility of Bitcoin over time, which contrasts sharply with the wild fluctuations of the previous bull cycle and indicates a steady progression towards stability that is here to stay.

While BTC’s realised volatility approached 140% at its highest points in 2021 and routinely stayed above 100% week over week, it has generally stayed below 60% over the previous year.

Navigating Fluctuations and Market Trends in Cryptocurrency Prices

Ethereum, which fluctuates in lockstep with Bitcoin, exhibited comparable trends at higher price points, with realised volatility hitting nearly 300% in May 2021. However, it has also continuously dipped below the 60% threshold over the previous 12 months.

Ethereum’s realized volatility hitting nearly 300% in May 2021 indicates a shift towards steadiness as sharp surges are tamed, prompting a need for patience amidst the evolving cryptocurrency landscape.

The monthly variations for both currencies were considerably smaller, typically falling within the range of 30% to 50% but occasionally falling into the twenties.

While the precise asset being studied, market conditions, and individual risk tolerance all influence what qualifies as low, moderate, or high realised volatility, a range of 10% to 30% is typically considered to be in the middle.

For example, Apple stock is definitely in this category.

Before we can compare Apple stock to Bitcoin and Ethereum and label them as somewhat volatile investments without evoking the “apples and oranges” fallacy, there is more work to be done.

Still, the fact that realised volatility is flirting with moderate ranges is a clear indication that we are moving in that direction.

Sharp surges will be soon tamed, even though psychologically significant round numbers and grim macroeconomic will continue to cause price reversals.

This is not to suggest that they won’t reach their respective $100,000 and $10,000 thresholds this year; rather, it means that reaching new heights will require patience as volatility gradually gives way to steadiness.

This isn’t meant to stifle the recent wave of optimism. Instead, it’s a serious analysis of contemporary affairs that merits a coming-of-age party even though it’s not as thrilling as crypto’s usual “moon” forecasts.

Now that the market has almost fully developed, it is appropriate to temper our excitement and direct it towards patience. There will soon be a new normal marked by persistently calm price action.

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