In what seems like a bizarro world reversal, oil has become more volatile than Bitcoin. Bitcoin is legendary for its high volatility and wild swings in price, although the turmoil affecting global markets may be strengthening its safe haven investment narrative.
Oil markets have been a rollercoaster since the beginning of the year
Oil markets are one of the world’s most important commodities markets, but recently they have been impacted by the global market panic surrounding the supply chain disruption and recession fears caused by the Coronavirus outbreak.
Indian Oil refineries have been scrambling to purchase discount crude destined for China, amid China’s diminishing demand caused by the crisis. Prices for some grades of crude have declined by as much as 15%.
This turmoil has caused the Oil market’s volatility to increase dramatically. West Texas Intermediate (WTI) oil volatility has risen from 38.7% to 119.6%, although it currently sits at 105.3%.
During the same timeframe, Bitcoin’s volatility has declined from 66% to 42%. This may be strengthening Bitcoin’s narrative as a safe haven asset similar to gold. Gold, even with its recent volatility, still remains less volatile than Bitcoin.
Gold’s volatility peaked at 18% in January, but in February the commodity dropped back down to 10%. Oil has dropped from $52.19/barrel at the end of January to $46.77 per barrel, where it sits currently.
Bitcoin volatility decreases with adoption
The market cap of Bitcoin and crypto is extremely small when compared to traditional markets. The entire crypto market is only $253.6 billion at the time of writing. In comparison, Forex, the world’s largest market, is $5.3 trillion.
In order to make an impact on price in the Forex markets, you would need a lot of money. To swing Bitcoin’s price on the most liquid exchange, Bitmex, you’d currently need about $8.5 million, according to the depth chart.
The small size of Bitcoin, combined with its global 24 hour trading, makes it extremely volatile, especially now that big fish traders from institutional funds have entered the market.
Many funds use aggressive algorithmic or machine learning trading strategies which can easily hunt stops and push prices around to liquidate smaller retail investors, who simply don’t have the deep pockets to stay in the trade.
As more users onboard, and Bitcoin user adoption increases, so will the market size. This will eventually minimize the ability of whales to create volatility in the markets by pushing prices around.
Eventually, if ‘hyperbitcoinization’ succeeds, and BTC becomes a globally adopted currency, volatility should diminish to become comparable to other commodities or investment assets.
What do you think of crude oil becoming more volatile than crypto? Let us know in the comments!
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