Is Ethereum's Volatility Disappearing?

Ethereum has grown to be second-largest digital asset in the cryptocurrency sector, but now people are starting to take note as volatility gauges suggest a shift in market dynamics. Unexpectedly, these indicators point to the possibility of ETH experiencing lower volatility compared to Bitcoin and other crypto blue chips. ETH’s volatility may be disappearing, but why and where are traders moving to next?

A Historical Perspective

Historically, Ethereum’s volatility has seen dramatic shifts. As of November 2021, Ethereum’s volatility escalated, with fluctuations almost twice as high as the previous month. Some sources attribute these changes to planned tax regulations found in a U.S. infrastructure bill, which could have potential repercussions for crypto investors.

However, over time, ETH’s volatility seems to have declined. The DVOL index, which calculates Ethereum’s annualized 30-day implied volatility, has fallen to record lows this year. This downward trend followed Ethereum’s long-awaited Shanghai upgrade, which reduced the risks associated with passive investing in the Ethereum network.

The question then is whether this is a measure of overall market volatility downtrends, or whether there is a more unique situation with ETH.

So ETH is becoming less volatile, and even starting to match the volatility of BTC. What gives?

Ethereum vs. Bitcoin: A Volatility Comparison

Interestingly, the volatility of Ethereum and Bitcoin, the two largest digital assets, has become increasingly aligned. The T3 Ether Volatility Index shows that the difference in volatility between Ether and Bitcoin, as measured by the 180-day realized or historical volatility, is currently at its smallest since 2020. This is a reversal of the usual pattern, where Ether’s index typically tops Bitcoin’s.

Why is Ethereum’s Volatility Decreasing?

So ETH’s volatility is taking a nose dive, but what are the reasons?

One reason could be the growing maturity of the market. Crypto is no longer a new asset class, and lower volatility might attract more institutional investors to crypto, as it becomes cheaper to buy protection and manage exposures. This could result in more exposure to Ether from long-term investors.

Furthermore, a faster decline in Ether’s implied volatility compared to Bitcoin could suggest that market participants are less uncertain or anxious about Ethereum’s future price movements. ETH has steadily executed on a clear roadmap and multiple huge technical upgrades over the past few years. BTC often looks dated and dramatic in comparison.

Degens move on for vol

In order to get the volatility fix for degen traders, we have seen further movement outside of “traditional” crypto assets. The meme coin craze can be seen as one manifestation of a desire for ETH volatility.

But volatility is declining everywhere, the VIX is also down only. With all asset classes moving in lockstep, it is only natural ETH volatility declines as well.

But it may be that we are just weathering the calm before the storm. With uncertain macro forecasts ahead and a hopeful crypto market waiting on the next cycle, we may be in for more volatility yet.


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