Bitcoin is less volatile than other widely trade cryptocurrencies


The American Institute of Economic Researches analyzed data from CoinMarketCap.com that go back to April 2013 for Bitcoin, Litecoin, Ripple, Ethereum and Bitcoin Cash. They compared the volatility of Bitcoin to other cryptocurrencies.

Looking at simple measures of volatility across digital assets also reveals some common patterns over time and interesting potential trends. While all five cryptocurrencies they study are still quite new, measures of volatility, and changes in those measures over time, are important in assessing their potential future viability as money. The researchers chose a relatively simple metric: the average daily percentage change in price. They averaged the absolute value of daily percentage returns for each cryptocurrency and year. (Using the absolute value lets them count positive and negative changes equally - changes of +3 percent and −3 percent to average to 3 percent, not zero.)

The chart below ranks the five cryptocurrencies on average daily price change for each year from 2013 to 2018. According to the research, in every year, Bitcoin is the least volatile cryptocurrency. Bitcoin reached its lowest average daily price movement, less than 2 percent, in 2016, before rising again to levels not seen since 2013. Its average daily price movement in 2018 has been about 4%.

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Generally, other cryptocurrencies appear to have started out much more volatile in early years or when they began trading, and converged toward Bitcoin’s level of volatility later in the sample period. The exception is 2017, when all cryptocurrencies except Ethereum saw significant upticks in average daily price movement. Interestingly, the first half of 2018 is the closest together the five cryptocurrencies have ever been in average daily price movement.

While cryptocurrencies exhibit larger price changes day-to-day, their higher volatility is really driven by “fat tails,” or the frequent occurrence of days with extremely large price swings. The chart below shows the number of days on average per year in which each of our five cryptocurrencies had price changes larger than 10 percent.

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However, Bitcoin is still far surpassed traditional currencies but comes in lower than the other cryptocurrencies. There are less than 20 days on average per year when BTC price rate has been changed larger than 10%. We suggest taking this research into account when specifying the discounted collateral value on Biterest. The higher the discount is, the lower the risk of occurring Margin Call will be.

You can get answers to the questions concerning the discounted collateral value and why Biterest uses it in the article at https://biterest.com/en/blog/discount

This article is based in part on research by Catherine Udodova and Jack Martin, 2018 graduates of the Berkshire School, as part of the school’s Advanced Math/Science Research program, supervised by Dr. April Burch. The article was published for the first time at https://www.aier.org/article/bitcoin-less-volatile-its-cryptocurrency-cousins.