How Volatile is Bitcoin?

A frequent criticism of bitcoins from the lay person revolves around the perceived bitcoin price volatility compared to fiat currencies such as the US dollar.  But although this type of commentary is common, its often not backed up with any type of data.  The assumption that the price of something is volatile is not itself proof of the fact.

I thought it might be helpful to publicize a website that tracks the volatility of bitcoin prices as measured by standard deviation. Standard deviation is a backward looking measurement of historical volatility. At present, there is no reliable source of implied volatility data about bitcoin due to the lack of an open derivatives market, so historical volatility is the best we can do right now. Here is a link to The Bitcoin Volatility Index, which is a website that tracks the standard deviation of various bitcoin prices.

Its important to keep in mind when discussion the bitcoin price (or any price for that matter) that the price of something is simply a expressed ratio between the value of two things. So to say there is one price for something assumes a standard base currency. We take this for granted since in North America at least, most of us use either the Canadian dollar or US dollar to buy and sell things during our daily lives at the retail level. But theoretically we could also value goods and services by any other price ratio too.

How does the volatility of the bitcoin/US dollar price compare to other currency pairs or other assets?  The price of bitcoin is indeed more volatile than CAD/USD, CNY/USD or any other major fiat currency pair. This may be because most central banks around the world have similar monetary systems and policies, therefore, they all tend to move in the same direction (whether you think these directions are “right” or “wrong” is beside the point). But what about the volatility of Gold/USD or other assets? It turns out the bitcoin price has also been much more volatile.

At this point in bitcoin’s history, its price has a similar level of volatility as stocks.  The historical 30 day standard deviation of the price of bitcoins/USD is currently 1.39 according the btcvol.  I used the standev excel function and data on the SPY from Google Finance to calculate the standard deviation of the SPY and got 2.09. So right now, over the past month, stocks/USD is more volatile than btc/usd. But they are close.