cryptonomics

Eli Dourado has a great great blog that covers allot of issues concerning cryptocurrency, you should follow it if you don’t already. In a new post he reports that Bitcoin volatility has been trending down.

I calculated Bitcoin’s historical volatility using price data from
Mt. Gox (downloaded from Blockchain.info), which is the only
consistent source of pricing data over a long period. There is a clear
trend of falling volatility over time, albeit with some aberrations in
recent months. The trend is statistically significant: a univariate
OLS regression yields a t-score on the date variable of 15.

But the claim that “there is a clear trend of falling volatility over time” isn’t defensible at all. Before I explain why I don’t agree with with Eli, let me first replicate his analysis.

bitcoin-vol1.png

My OLS regression calibrates with Eli’s, so we’re on the same page:

                      Estimate   Std. Error   t value      Pr(>|t|)

(Intercept) 1.203775e-01 3.351178e-03 35.92095 3.489853e-194
seq(1, length(date)) -8.056651e-05 4.666856e-06 -17.26355 5.281210e-60
Putting that into English, the coefficient of the regression line is saying that volatility declines by about .00008 a day, or about 3 percentage points annually. Interpret that however you want.

And what is the daily volatility of BTC/USD?

Min.  1st Qu.   Median     Mean  3rd Qu.     Max. 

0.007301 0.027890 0.048980 0.070220 0.082930 0.355300
About 5% per day. That’s pretty wild stuff, considering that the volatility of the S&P 500 is about 0.7% per day. But patience calls, one might say, for the trend line predicts that BTC/USD volatility is in decline.