Curb your enthusiasm — crypto prices aren’t going to move as quickly as you think

February has been great for Bitcoin BTC $56,908 — there’s no denying it. Even the most cautious, poker-faced of investors would have found it hard to contain their excitement as BTC stormed past the $50,000 milestone.

So optimistic was the sentiment that prices barely even flinched at the January CPI report — a 2% drop is nothing in crypto terms. Comparisons to the 2021 bull run were naturally drawn, fueling a fresh set of “Bitcoin at $100,000” predictions.

This excitement, however, should be tempered. On close examination, the current rally appears to be largely psychologically driven. The bigger picture indicates we’re in for a lot more of the boring price action that preceded it, and that 2024 will be altogether different from the euphoria of 2021.

Markets have an affinity for round numbers, and this holds all the more true for crypto, where everything is exaggerated. On Feb. 9 we saw not one, but two such figures announced.

Firstly, Bitcoin spot ETFs the much-publicized gateway to cryptocurrencies for TradFi institutional investors — hit $10 billion in assets under management in less than a month of trading. Then, secondly, the S&P 500 read “big tech and finance” reached a historic milestone at 5,000 index points. What lies beneath and before these price moves tells another story.

Bitcoin was trading within a relatively tight range of 1-2% in the days before the current spike. A macro take might be that the market remained cautious due to the Securities and Exchange Commission’s indecisiveness on matters like BTC spot ETF options, whether Ethereum is a security or a commodity (and, in turn, approval of ETH ETFs), and the Fed’s reluctance to lower interest rates.

Though macro and not inaccurate, this is a myopic take. A look at the realized volatility of Bitcoin over the years strongly suggests that narrow ranges and caution aren’t merely a reflection of the current environment, but a sign of steady progression towards stability that contrasts sharply with the wild fluctuations of the previous bull cycle, and is here to stay.

A statistical measure of how much an asset’s price has varied from its average price over a given time frame, realized volatility is used to assess the risk associated with that asset, with higher levels indicating greater risk. For Bitcoin (and its runner-up Ethereum), it has been declining.

In 2021, BTC’s realized volatility consistently hovered above 100% week-on-week and neared peaks as high as 140%, However, over the past year it has typically remained under 60%.

Ethereum, which moves in tandem with BTC, followed similar patterns at higher ranges, with realized volatility reaching almost 300% in May 2021. Over the past 12 months, though, it too has consistently crept under the 60% mark.

On a monthly basis, deviations for both currencies were even lower generally ranging between 30% and 50%, but also dipping into the twenties.

While what constitutes low, moderate, or high realized volatility varies depending on market conditions, the specific asset being analyzed, and individual risk tolerance, a 10% to 30% range tends to classify as moderate. Apple stock, for instance, falls squarely within this category.

There’s still a way to go before we can call Bitcoin and Ethereum moderately volatile assets and compare them to Apple stock without triggering an “apples and oranges” response. However, the fact we are seeing realized volatility graze the moderate ranges is an unmistakable sign that we’re headed in that direction.

Although psychologically significant round numbers and dire macros will trigger price reversals for a while yet, any sharp spikes will be quickly subdued. This isn’t to say that their respective $100,000 and $10,000 milestones aren’t on the cards this year, but rather, that the climb to new heights will be a slow and steady exercise as volatility progressively gives way to stability.

This isn’t to dampen the bullish sentiment of the past few days. Rather, it’s a sober take on current events that, though unexciting compared to crypto’s typical “moon” predictions, calls for a coming-of-age celebration. As an almost mature market, it’s time to curb our enthusiasm and channel that energy toward patience. A new normal characterized by consistently tame price action is here for Bitcoin and Ethereum.