After years of an unhinged roller coaster ride, the once notorious volatility of bitcoin seems to have ebbed.
Similar to a once reckless teenager maturing into a more cautious adult, bitcoin has provided less volatility and more mellow patterns in pricing trends to traders over the past few months.
The problem is, in trading circles at least, stability is usually another word for boring.
Since their modern inception, a significant part of the allure of investing in crypto assets was their ebullient nature and the fun and excitement that cascaded through crypto communities that came from something so radically different and unpredictable.
Folks were attracted to bitcoins status as an outside the mainstream alternative to the established financial order. Wherever bitcoin enthusiasts gather, there is rage against fiat currency, big banks, and the structure that in their eyes supports them.
Other folks rushed into trading cryptocurrency simply for the exposure to the raw nature of volatility it has historically offered. It was wild and fun and potentially lucrative to trade.
It always felt like the financial equivalent of teenage rebellion at its finest.
However, as is often the case, as you age you begin to gather a different group of friends.
One thing that's happened following the historic rise in bitcoin we saw in 2017 is an increasing number of established institutions wanting to buy, sell, trade or support bitcoin in some fashion.
This means, in a great twist of old fashioned irony, the rebels that built bitcoin did so in a way that created something the establishment increasingly wants a piece of.
Will the same individuals responsible for the rise of bitcoin feel the same support for bitcoin as institutional behemoths pile in and start buying and selling crypto, crypto derivatives, crypto ETF’s , and a variety of other products?
As just one more sign of the increasingly institutionalized nature of bitcoin, just last week, Nasdaq announced they would consider offering a cryptocurrency exchange as part of their platform.
It can’t get any more establishment than big banks trading on the Nasdaq.
For many, bitcoin came on like a wave and rushed through markets. In its wake, it tossed off opportunities to trade on price changes in the hundreds of dollars that occured in mere minutes.
Seemingly every screen refresh brought about a sharp new direction in price.
And now it seems as if everyone, from every corner of the financial spectrum, wants their piece of the crypto pie, and that might be smoothing volatility considerably.
To be sure, bitcoin is still volatile compared to other assets, but it's a far cry from what it was.
Big banks want to trade it, brokerages want to sell it, and scammers want a cut, often by shadily marketing to mom and pop investors looking for their own crypto adventure.
The reality is what we always knew; bitcoin will evolve, change and adapt. It can't sustain what it was.
The challenge then of course is to find out what it will be when it grows up.
And for a signal as to what that will be, we need to turn to the data.
An Epic Run for the Ages
Few have or will ever see a run of hysteria like was witnessed around bitcoin near the end of 2017.
What was remarkable was that everyone participating was able to see what they wanted and retrofit it to their view of crypto.
Were you a true believer? For you, the end of 2017 was merely an inevitable unleashing of millions of people glimpsing the future all at once.
Maybe you were a crypto skeptic? You saw that season as a time when stories circulated of relatively low wage earners buying bitcoin on credit cards fueled by a ruthless and relentless fear of missing out. For you, it was a classic bubble on the brink of rupture.
Both camps acknowledge a wild surge in popularity, even if they differ on the rationale for it.
The rise was meteoric, and a glance at the Google search trends can prove it.
Data via Google Trends, Visual built by Jason Pfaff
Of course, the fall is just as precipitous.
The Truth is In the Data
Not surprisingly, trading volumes are following generally the same pattern. As new interest has waned, so has trading activity. How much has it dropped off?
On December 22nd, measured in dollars, over 5 billion was traded according to blockchain.info
On April 28th, around 715 million was traded.
Total bitcoin transactions have followed a similar arc and have now retreated back to where the number was in late summer and early fall last year. While that does not seem that long ago in calendar time, in bitcoin time that is the equivalent of decades.
The last time transaction levels were this low, bitcoin was trading around $3,000, about a third of the current price.
The Road Ahead
The most interesting thing about bitcoin today might just be the dual narrative playing out.
On the one hand, you have a significant network of institutions like Google and Facebook concerned so much they seem to be bent on delegitimizing bitcoin by banning advertising and taking other steps.
On the other, you have large financial institutions, many more interested in the underlying blockchain technology, moving to develop cryptocurrency products and to participate in a maturing digital currency marketplace.
Over the long run, we see the forces seeking to legitimize bitcoin winning out. Unfortunately, throughout history, most financial products are used as a vehicle by those with less than noble intentions. And just like that has not killed off trading in gold or stocks, it won’t kill off crypto either. In time, we will look in the rear view and see things like ad bans and sweeping regulation as inevitable friction on the way up of what will be an sustainable long range growth story.
But with that growth comes two sides of an equation. As more institutions pile in, more stability and equanimity will result.
Instead of nearly constant screen refreshes to watch each jump in the bitcoin price, traders will move to a more conventional situation where we simply monitor the price of bitcoin as part of an overall trend.
Put another way, bitcoin is moving from an awkward and reckless teenage phase to young adulthood. Still capable of a few wild and crazy Friday nights, it just won’t be wild every night like the good old days.