Why you should be terrified of owning Bitcoin

Incredible daily fluctuations

My colleague Scott DeCarlo ran numbers showing the daily “variance” in Bitcoin prices from the start of 2021 through July 8. The yardstick is the percentage swing from the low to the high for each day. He calculated the same data for the S&P 500, and for gold. Although Bitcoin trades 24/7 every day of the year, our numbers show the lows-to-highs for the regular 9:30 a.m. to 4:00 p.m. (Eastern time) trading day for U.S. equities. Using trading days makes for a better side-by-side comparison of Bitcoin’s volatility versus that of stocks.

Over the 146 trading days so far this year, the smallest difference between the high and low price was 2.5%, posted on April 1. On only four days was the number less than 3.1%. On 131 days, or 89% of the time, Bitcoin’s price fluctuated at least 5%, and the variance hit double digits on 39 occasions, or more than one in four of all trading days. On 17 days, the trek from the low to the high covered 15% or more.

Bitcoin went on a tear from early January to mid-April, rising from $28,000 to over $64,000. But that trip was the antithesis of a smooth climb. From January 8 to 15, it zig-zagged over 10% in the same trading day six times, while falling from $39,700 to $37,300. From January 20 to 29, it wobbled by double-digit percentages on seven days, swinging over that interval from a low of $28,000 to a high of $38,600, a range of 34%. Yet over the entire span, its price barely moved, starting and ending at roughly $35,000.

The pattern has been similar since mid-June. Bitcoin has been as high as $41,300, and as low as $28,800, a swing of 43% in a month. In that period, its daily variance from high to low has averaged 8.4%.

All told, over the 146 days, Bitcoin has posted average or “mean” variance of 9.1%. The median low-to-high was 7.6%. So on a regular, uneventful day, you can expect to see your Bitcoin selling at 8% to 9% less at its low price than at its high price. That volatility is indeed off the charts. The spikes and valleys wouldn’t fit on the chart for any other major asset.

Stocks: a relative bastion of steadiness

Everyone knows that stocks often gain and lose value in sudden spurts. Their sharp ups and downs, even within the same day, are a big reason that equities command premium prices when compared to relatively stable Treasurys, for example. But stocks are a smooth mountain lake alongside the raging sea storm of Bitcoin.

Since the start of 2021, the largest daily variance on the S&P 500 is 3.3%, recorded on March 5. That peak number ties the sixth most stable day for Bitcoin. Only six times in those 146 trading days has the S&P swung by more than 2%. Two-thirds of the time, the distance between the high and low has been less than 1%. All told, the arithmetic average variance for the S&P was 1%, and the mean a touch lower at 0.9%. Put another way, Bitcoin was around 8 times as volatile as big-cap stocks.

Bitcoin is multiple times as volatile as gold

The Bitcoin crowd claims that their asset beats gold as a “store of value.” It has certainly bested the precious metal as a vehicle for speculation over time, though it has underperformed its ageless rival by over 50% since April.

Gold’s biggest daily shift between high and low was 4.9% on January 8, a day when it sold off sharply. A negative jobs report sent investors dumping Treasurys in search of cash, and driving up yields. Gold took a hit because it competes with Treasurys as a safe haven. The next highest variance was 3.3%, and overall gold’s price swung over 3% on just three occasions. It spent just 14 days between 2.0% and 2.9%, and its price varied between under 1% and 2% two-thirds of the time. It never came close to a double-digit day, while Bitcoin hit that range more than three dozen times.

Overall, Gold displayed average and median variances of just 1.4% and 1.3%. That compares with 9.1% and 7.6% for Bitcoin. This year, Bitcoin on an normal day has waxed and waned at six times the pace of gold.

Bitcoin jumps around so much more than stocks and gold because many folks and funds don’t know what to make of it. It doesn’t produce income, is incredibly erratic as a store of value, and has no practical uses. Its selling point: Bitcoin’s been a great investment for those able to ignore what often amounts to a liftoff and crash in a single day. Its fans are living dangerously, and for now, many relish the adventure. Financial markets have never seen investors embrace this level of “excitement.” Soon, they may be thinking hard about how much excitement is too much.