Bitcoin roller coaster! Where do we go from here?

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Bitcoin (BTC) price fluctuations are not for the faint of heart :

Within a few hours, the cryptocurrency can record price jumps in the 2-digit percentage range. This has just become clear again in the last few days.

Will we continue to see increased volatility in bitcoin going forward?

From a new all-time high of over $58,000 last Sunday, bitcoin (BTC) has since corrected by more than 20%.

Consolidation is in full swing, with the leading cryptocurrency falling below the $45,000 level at times on Friday.

In principle, these price jumps are not unusual for Bitcoin; after all, the cryptocurrency is known for its price capers.

That said, the crypto market seems particularly volatile to us right now.

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The price decline in recent days coincided with a setback in the equity markets - especially in technology stocks.

In this respect, the question now arises as to whether we should expect increased volatility in the future, possibly in correlation with the financial markets.

Is Bitcoin becoming more dependent on the financial market?

Bitcoin (BTC) has been known more as a countercyclical asset that benefits as a "safe haven" in times of crisis.

After all, the first "cryptocurrency" was created at the time of the financial crisis (2007/2008).

We can only speculate about Satoshi Nakamoto's motives:

What is certain, however, is that Bitcoin was perceived as a kind of "counter-design" to state currencies - and thus also behaved contrary to many well-known asset classes.

Bitcoin (BTC) made its first "big" rise to just under 1,000 US dollars at the end of 2013 - partly due to the European banking crisis. It is not for nothing that Bitcoin is also called "digital gold".

Bitcoin News

At the same time, however, there are also periods in which Bitcoin (BTC) behaved relatively similarly to stocks and co, such as during the price decline at the beginning of last year.

Gold was no different at times.

After that, however, bitcoin showed great strength as it recovered faster than other asset classes and began a price rally late in the year.

The increasing prevalence of Bitcoin (BTC) and the involvement of professional investors tend to suggest that the digital currency is moving closer to other asset classes. The cryptocurrency is increasingly becoming part of the financial market.

Nevertheless, it cannot be assumed that Bitcoin will now develop in unison with the financial markets. The cryptocurrency is a new, separate asset class that only correlates with other asset classes to a limited extent.

The long-term picture

In the long run, it shows:

Bitcoin (BTC) has been a volatile asset from the beginning. The Bitcoin Volatility Index (see chart below) shows a significantly higher volatility for the first years than currently.

Bitcoin News

For example, at the end of 2011 and the beginning of 2013 there were already similarly strong price developments as now, in each case followed by a strong correction.

However, the highs of that time are hardly visible next to the current price levels.

Although volatility has recently increased again, it is still below the level of early last year - when Bitcoin (BTC) corrected significantly in the wake of the Corona crisis. In this respect, it is quite possible that we will have to prepare for price fluctuations in the near future as well.

The rise to over $50,000 has happened in a very short time:

Larger and rapid price setbacks cannot be ruled out.

At these price levels, bitcoin's absolute gains and losses naturally appear higher. In addition, there are increasingly investors who trade the cryptocurrencies with leverage.

JPMorgan also recently cast doubt - given the increased volatility - on the Sustainability of the Bitcoin rise.

The new highs can only be explained to a small extent by institutional inflows.

MicroStrategy CEO Michael Saylor is more optimistic. He's less impressed by the volatility. It was recently announced that his software company exchanged another billion US dollars for Bitcoin..

In the long term, it is more likely that volatility will gradually decline.

As Bitcoin (BTC) has gained notoriety, it has also gained market breadth - and with a market capitalization of nearly $1 trillion, it is no longer a niche market.

The increase in liquidity has a favourable effect on price discovery and makes it more difficult for individual parties to influence the price significantly.

In addition, the entry of institutional investors should prove to be a stabilising factor. After all, this group of investors usually has a longer-term investment horizon. In this respect, the chances are good that Bitcoin will become less volatile - i.e. "less volatile" - in the long term.

Conclusion

Bitcoin (BTC) is increasingly becoming its own asset class - with its own rules.

In the short term, bitcoin is not immune to major price spikes: however, as the market continues to grow, volatility should decline over the long term.

Despite the correction, bitcoin 's (BTC) bull market continues unabated:

Recently, the trend-following indicator MACD showed a bearish signal in the daily chart, but the relative strength index RSI would still have room to go up. In general, corrections are not unusual after such an exponential rise and - to a certain extent - are also "healthy" for the price development.

Still, Bitcoin (BTC) won't be able to maintain the pace it has been on in recent months forever:

Nevertheless, the end of the price rally does not have to be heralded.

Investors should not be alarmed by the increased volatility. Larger setbacks or price jumps can be suitable as buying opportunities or for taking partial profits.

Fabian Beining Investment Consulting

About the author

As an independent financial advisor, Fabian Beining gives you an objective overview of your insurance and financial products and develops a targeted, risk-efficient investment strategy together with you that fits your individual wishes and goals.

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