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Bitcoin’s link between low volatility and outsized returns


Bitcoin’s price volatility remains close to historic lows, despite some choppy price action last month as a result of both negative and positive news.  

These events, including Evergrande’s bankruptcy and a US court decision in favor of Grayscale, temporarily reversed the trend of declining bitcoin (BTC) volatility observed since the onset of the US bank crisis in March. However, BTC volatility remains low when compared to its historical values. 

Bitcoin’s periods of low volatility—which we can define as being below 30% (in line with tech stock volatility1)—are not unprecedented, even going back as far as 2012. By looking at BTC's annualized 30-day volatility we can see that it periodically falls below the 30% level (green shaded area in the chart below).


Source: Hashdex Research with data from CryptoQuant (from 12/01/2010 to 09/08/2023).

Recently, our team conducted some research to better understand what these periods of low volatility might signal for future price action. As the table below illustrates, over the past 12 years, BTC has spent most of its time (~93%) in a high volatility regime. With the exception of 2016, in every year since 2011, the period of low volatility (below 30%) lasted less than 60 days. 


So, has allocating to BTC during these periods of low volatility historically benefited investors?

To help answer this, we calculated the return of BTC over a one-year window for an investor who had allocated to the asset during one of these low volatility days.


Source: Hashdex Research with data from CryptoQuant (from 12/01/2010 to 09/08/2023). *Nonexistent returns in 1 year windows at the date of analysis.


What we found was that although they are rare, these low volatility periods have led to above-average returns. And in some cases, significantly outsized returns, such as in 2013 and 2016.  

 While we discourage investors from trying to perfectly time crypto investments—there are far too many unknowns and variables that can impact prices—the maturation of this asset class is making it easier to understand what has happened historically to drive prices. If history does indeed rhyme, the current environment of low volatility may be once again presenting investors with an excellent entry point to getting crypto asset exposure. 

1According to typical values of the Nasdaq 100 Volatility Index.


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