Crypto Voices

Podcast & Information

Cryptoeconomics & Liberty

Historical daily volatility

Chart notes:

  • Blue line: Market price of coin, in US$;
  • Green area: Currency historical daily volatility against US$, if held for 1 month;
  • White line: Currency historical daily volatility against US$, if held for 1 year.




Historical daily volatility explained

Historical volatility is a helpful metric in determining an asset's "swing" in price over a specified period of time.

Let's jump right into what is graphed above:

  1. Green trend: Historical volatility based on the daily price changes during the previous month.
  2. White trend: Historical volatility based on the daily price changes during the previous year.

Note that what is graphed above is only daily volatility. Not monthly volatility. Not annual volatility. And it's based on actual, historical, daily price data. Though sometimes "annualizing" the daily volatility is helpful, such methods can often be a case of "the experts using the numbers to say anything." So keep in mind, we are only looking at the extent of actual, daily price swings here.

Yet even sticking with daily price volatility, the numbers can be confusing to interpret. If you were looking at the green-shaded data, then, here is what it shows for the various cryptocurrencies:

  1. Two-thirds of the time during the previous month (i.e. about 20 out of 30 days), the daily price change was less than or equal to the % of daily volatility.
  2. 95% of the time during the previous month (i.e. about 28 out of 30 days), the daily price change was less than or equal to the % of daily volatility times 2.

In both cases above, note that the daily price change could have moved up (+), or down (-), by a % less than or equal to the % of daily volatility. This is why volatility is always a positive number. This is also what they mean by the % change falling within 1 standard deviation (or, within 2 standard deviations in the case of #2).

The white line, then, means the exact same thing as the green, except we are not using price data from the past month, but from the past year. Remember, we're still only looking at daily price swings.

So volatility suggests the daily price swings you would have to "endure" based on if you held the asset for a month, or if you held the asset for a year (in this example). And of course, the standard financial legalese of "past performance is not indicative of future results" very much applies to historical volatility. Market price is a strange beast.

When we look at fiat or digital currencies, you can say that those assets with lower price volatility are typically more favorable, as they provide many less "Maalox moments" for investors and savers. Merchants as well would typically prefer to trade their goods and services for a currency with a more "stable" and less "volatile" value. Indeed, this is why many have claimed that cryptocurrencies are really less like currencies today, and more like digital or synthetic commodities. With more adoption, this will change in the future.



Contributions appreciated:

BTC: 13GQnQm99jDdXcd8CjTHMKcRpTKBKNgFZk

ETH: 0x39ec522498571aE99054472190f24f1944a471eB

LTC: LM4iy3sPqfJZ4CyFSvr6zXVLGNTy7R28Gz

DASH: XjpTPfu7caDNVwnkuWtAFnAyCzmPnLeSEg

DOGE: D6KFh4rfMSiLamsnqvmXBfuwhe46NcwG2H