If you’re a market investor, you’ve likely wondered about the relationship between Bitcoin volatility and the S&P 500. You’ve also probably wondered if the two assets are truly connected. Here’s a look at how they compare. Bitcoin volatility, for example, is about one-sixth of the S&P 500’s volatility, or about one-tenth of the variance in the S&P 500.
As a cryptocurrency, Bitcoin exhibits both a lag and a lead relation to other financial assets. Its drivers include demand for the currency and speculation. The characteristics of bitcoin are complicated, with some periods being spent as a payment while others are devoted to investment speculation. Regardless of the lag and lead relation between Bitcoin and other financial assets, it’s important to know which one you’re investing in.
One factor that affects the volatility of Bitcoin is the IRS’s requirement that users pay taxes on the price of their cryptocurrency. While taxes will influence the price of the cryptocurrency, they do not necessarily contribute to its volatility. While the S&P 500 is more stable than Bitcoin, it still contains a high degree of volatility. A low level of volatility means you’re not risking your money if the price of Bitcoin drops below your threshold.
The study compares Bitcoin volatility with other popular asset classes. Bitcoin has the highest volatility, but other commodities have lower volatility. Gold, on the other hand, has the lowest volatility compared to the S&P 500. Crude Oil’s volatility is about two-and-a-half times higher than Bitcoin, while Gold has more than doubled its volatility since the Pandemic began. The most recent significant volatility in Bitcoin came on March 12th, when Bitcoin dropped from $7,300 to $3,900.