Temper Expectations: Crypto Prices Won’t Soar Rapidly

Bitcoin has been experiencing a strong rally in February, with prices soaring past the $50,000 mark. This has led to renewed optimism and predictions of Bitcoin reaching $100,000. It is important to approach this excitement with caution. Upon closer examination, it becomes clear that the current rally is largely driven by psychological factors. Looking at the bigger picture, it is likely that we will see more of the slow and steady price action that preceded this rally, and that the market will be quite different in 2024 compared to the euphoria of 2021.

In February, two significant milestones were reached in the world of cryptocurrencies. Firstly, Bitcoin spot ETFs, which serve as a gateway for institutional investors, reached $10 billion in assets under management in less than a month. Secondly, the S&P 500 index reached a historic milestone of 5,000 points. What happened before these price moves tells a different story. Bitcoin was trading within a relatively tight range leading up to the rally, which could be attributed to various factors such as regulatory uncertainties and the Fed’s stance on interest rates.

Taking a macro perspective, it is evident that Bitcoin’s volatility has been decreasing over the years. Realized volatility, which measures an asset’s price fluctuations, has been declining for Bitcoin and Ethereum. In 2021, BTC’s realized volatility consistently hovered above 100%, but over the past year, it has generally remained under 60%. Ethereum has followed similar patterns. This trend towards lower volatility is a sign of the market progressing towards stability.

Although Bitcoin and Ethereum are not yet considered moderately volatile assets, they are heading in that direction. While there may still be price reversals triggered by psychological factors and macroeconomic conditions, any sharp spikes will likely be quickly subdued. The climb to new heights will be a slow and steady process as volatility gives way to stability. This does not mean that the milestones of $100,000 for Bitcoin and $10,000 for Ethereum are out of reach this year, but rather that their attainment will be a gradual process.

It is important to note that this analysis is not meant to dampen the recent bullish sentiment in the market. Instead, it is a realistic assessment of the current situation that calls for a more mature and patient approach. As the cryptocurrency market matures, it is time to temper our enthusiasm and embrace a new normal characterized by consistently stable price action.