Bitcoin experiences increased frequency of extreme price shocks

Bitcoin is experiencing an increase in the frequency of extreme price movements, despite a significant decrease in overall annual volatility. While Bitcoin’s annualized volatility has dropped to approximately 46% compared to 84% in 2018, the occurrence of “three-sigma” days—where price changes exceed three times the 30-day realized volatility—has risen.

Data indicates that the number of these rare, high-impact price shocks in the current period has already surpassed the total recorded during the entire 2018 bear market. Although the average magnitude of these three-sigma moves has decreased from roughly 10% in 2018 to about 7% recently, the increased frequency presents new challenges for investors using traditional risk assessment models.

Nicolas Quatravaux, head of EMEA at Paradigm, noted that while institutional investment and increased liquidity have stabilized average trading days, macroeconomic developments and leveraged trading continue to trigger sudden price shocks. For comparison, Bitcoin’s volatility levels have recently mirrored those of Nvidia, though Bitcoin has recorded significantly more three-sigma events than the semiconductor company.