Now Oil Shows Higher Volatility Than Bitcoin!

Skeptics and traditional market investors often associate Bitcoin (BTC) with wild volatility. However, in recent times, oil has become relatively risky to invest in.

On February 10, the West Texas Intermediate (WTI) oil price’s one-month realized, or historical, volatility was estimated at 105.3%, while in January it broke its four-month high, reaching 119.6%. In the meantime, Bitcoin’s historical volatility decreased to 42%, the lowest level since September, as Skew Markets data suggests.

Historical volatility is calculated on the basis of price fluctuations in the past, being computed from the standard deviation of daily price movements of the front month futures price, usually for a 30-day period. It is stated in annualized terms.

However, it does not show the direction, only deviation of the security’s price from its average. So, as oil demonstrates higher historical volatility than Bitcoin, we can state that “black gold” has been more volatile than Bitcoin.

WTI’s volatility bounced steeply from 38.7% on January 6 to a high of 119.6% on January 27. Bitcoin’s volatility has steadily decreased from 66% to 42% in the four weeks to mid-February.

In comparison, the S&P 500 index’s realized volatility rose up in the last week of January and stood at 15.6% on February 19. Gold’s volatility doubled to 18% in the first ten days of January before falling back to 10% earlier this month.

Two major events contributed to the rise of oil price volatility. First was the large price fluctuations after U.S.-Iran tensions exacerbated. On January 3, the U.S. attacked an Iranian base in Iraq, killing a top military commander and bringing geopolitical uncertainty to markets. As a result, WTI jumped from $61 to $64 in just two hours to 02:00 UTC. Prices continued to rise, hitting multi-month highs above $65 during the Asian trading hours on February 8 after Iran retaliated by attacking U.S. bases in Iraq. However, the fear of all-out war faded quickly with wires reporting no casualties on the U.S. side, which made oil prices fall to $60 on the same day.

Second event was the persistent fear of coronavirus in the following weeks, which made a major impact on the market sentiments. WTI fell below $49.50 two weeks ago before regaining traction. At the time of writing, a barrel of oil costs around $54.40.

While WTI stormed in both directions, the Bitcoin market remained relatively calm with a strong uptrend. The cryptocurrency rallied almost smoothly from $6,850 to $10,500 in the six weeks to Feb. 13. Thus, it’s not surprising that Bitcoin’s historical volatility is lower than that of oil.

This is not the first time oil sees higher volatility that Bitcoin. From mid-September to mid-October, WTI’s historical volatility skyrocketed from 60.9% to 133%. Before that, though, Bitcoin was considerably more volatile than oil.

Analyzing the future perspective, we may state that Bitcoin’s price volatility may increase with whales, or addresses holding from 1,000 to 10,000 BTC, starting to accumulate coins. Thus, it is hard to say if Bitcoin would keep its volatility lower than oil.