Bitcoin volatility falls to two-year low as TradFi markets wobble

Despite its reputation as an unpredictable and risky asset class, crypto hasn’t been particularly volatile in recent weeks.

According to crypto market data provider Kaiko, Bitcoin’s 20-day volatility has equaled the NASDAQ for the first time in two years. But while Bitcoin’s price has remained about the same since the beginning of September, both the NASDAQ and the S&P have fallen 13% and 10%, respectively, since then.

Historically, Bitcoin has been closely correlated with technology stocks, but with higher beta (volatility compared to the rest of the market) – thus defying the label in some circles as a safe haven, or “digital gold”. However, despite a violent crash in June, crypto has proven to be one of the best asset classes in the 3rd quarter, next to the US dollar.

As with volatility, Bitcoin’s actual price dropped to late-2020 lows last week after the US core price index or CPI (which excludes food and energy) hit another 40-year high. Bitcoin and stocks both fell on the news, but quickly bounced back to their respective ranges.

June’s first collapse followed the release of May’s CPI data, which showed inflation at 8.6%. Markets took that as a sign that the Fed would not end its aggressive policy stance anytime soon, inspiring participants to pull back from “risky” assets.

That said, while inflation has remained elevated at roughly the same rate, crypto hasn’t seen much significant price action with successive CPI updates. Stocks, on the other hand, continue to trickle down.

Meanwhile, the hawkish attitudes of central banks around the world are starting to turn bonds into a volatile yet rewarding asset class. As Bloomberg reported last month, bond yields have been soaring thanks to Fed policy, while DeFi yields have fallen below 100 basis points on protocols like Aave.

Last week, popular Twitter analyst Will Clemente noted how financial market volatility has skyrocketed relative to Bitcoin volatility in recent months. At the time, stock volatility also hit all-time highs against Bitcoin volatility.

“This illustrates just how much volatility compression Bitcoin is currently experiencing,” he tweeted next day.

With assets around the world showing weakness alongside the dollar, even the UN has shouted at The Fed stops raising interest rates. But the central bank shows no signs of stopping right now.