Bitcoin soared over the past month—but saw unprecedented volatility

Bitcoin's careening course shows that it's likely the most volatile major asset class ever to be taken seriously.

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The good Bitcoin news: In July, the signature cryptocurrency rose 21% on strong endorsements from such prestigious backers as Elon Musk and Jack Dorsey. The bad news: En route to that gain, Bitcoin took the wildest of roller-coaster rides. Its careening course shows once again that Bitcoin is likely the most volatile major asset class ever to be taken seriously. Skeptics might argue that the stumbling and ascents are so extreme, and put investors at such risk, that it shouldn’t be taken seriously.

Bitcoin zigzags crazily on its way to a comeback

Over the 22 business days in July, Bitcoin swung a total of 40.7% from its low on July 20 of $29,308 to a high on July 31 of $41,598. By mid-morning on Aug. 2, it has fallen 5.6% from that summit to $39,396. On its two least volatile days, July 22 and 23, its variances from low to high were 2.8% and 2.9%. On 11 days, or half the time, it was worth at least 5% more at its best level than at its worst. Its biggest leap from bottom to top: 17.7% on July 26 on speculation that Amazon might be venturing into digital currencies.

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The good Bitcoin news: In July, the signature cryptocurrency rose 21% on strong endorsements from such prestigious backers as Elon Musk and Jack Dorsey. The bad news: En route to that gain, Bitcoin took the wildest of roller-coaster rides. Its careening course shows once again that Bitcoin is likely the most volatile major asset class ever to be taken seriously. Skeptics might argue that the stumbling and ascents are so extreme, and put investors at such risk, that it shouldn’t be taken seriously.

Bitcoin zigzags crazily on its way to a comeback

Over the 22 business days in July, Bitcoin swung a total of 40.7% from its low on July 20 of $29,308 to a high on July 31 of $41,598. By mid-morning on Aug. 2, it has fallen 5.6% from that summit to $39,396. On its two least volatile days, July 22 and 23, its variances from low to high were 2.8% and 2.9%. On 11 days, or half the time, it was worth at least 5% more at its best level than at its worst. Its biggest leap from bottom to top: 17.7% on July 26 on speculation that Amazon might be venturing into digital currencies.

All told, Bitcoin posted average variances of 6.2% a day. (That’s the “mean” or arithmetic average from low to high.)

Bitcoin gyrations make stocks and gold look placid

Investors buy equities and gold because they expect outsized returns in years ahead in exchange for lots of bumps and shocks over shorter intervals. But both of those categories were, as usual, a model of stability when compared to Bitcoin’s fluctuating fever chart in July. For the month, the S&P 500 gained 2.2%; its variance from low to high was 4.7%, one-ninth the figure for Bitcoin. On big cap stocks’ most volatile day, July 21, the gap between the low and high price was 1.8%. That biggest swing was a third less than Bitcoin’s 2.8% down-to-up trip on its calmest day. Overall, the S&P’s average daily variance was 0.8% versus Bitcoin’s 6.2%. Hence, the leading crypto jumped around 8.5 times as much as America’s big caps.

How did Bitcoin’s meanderings compare with the path for gold? The precious metal is Bitcoin’s principal competitor as a “store of value.” That’s the area where Bitcoin will shine in the future, claim its fans. Gold had an excellent July, gaining 3.8% to $1,814 an ounce. Its largest daily price difference from low to high was 1.4% on July 29. So on gold’s most volatile day, its price swung half as much as Bitcoin did on its serenest day. Overall, gold had an average variance of 1.1%. At 6.2% a day, Bitcoin proved almost six times as volatile as gold.

Bitcoin gets its big lifts from endorsements

Stocks rose in July due to strong earnings reports and positive consumer spending numbers that more than offset concerns about surging inflation. Gold, as usual, fared well because investors view the precious metal as protection against risks of fast-rising prices. Investors assess the economic fundamentals in weighing values in both asset classes. But with Bitcoin, the driver appears to be endorsements from highly-publicized business leaders and asset managers. In July, Bitcoin jumped on Musk’s assurances that if Bitcoin could get greener, Tesla would once again accept the cryptocurrency as payment for its cars, and Dorsey’s promise that Bitcoin is a “big part” of the social media firm’s future. Praise from Cathie Woods of ARK Invest, one of Wall Street’s hottest influencers, also appeared to drive Bitcoin higher.

It’s not clear that those votes of confidence raise the odds that Bitcoin will ever be a widely accepted currency, a reliable store of value, or a fixture corporate balance sheets. It volatility is a big drawback in all three functions.

Bitcoin’s fans will rightly stress that although Bitcoin took multiple the swerves of gold and stocks last month, it delivered multiple the returns. The rub for investors: They know Bitcoin will keep swerving. They just can’t predict if it will race to glory, or skid off a cliff.