S&P 500 is More Volatile than Bitcoin in October
A lot of the buzz around Bitcoin comes from its volatility and the potential to experience significant gains (or losses) due to severe swings in price; so it might come as a surprise that in October Bitcoin was less volatile than the S&P 500. An array of events are causing the traditional stock market to be more volatile than usual, and a maturing cryptocurrency industry has caused crypto-prices to be somewhat stable lately.
Why has the Stock Market been so Volatile?
There has been a lot of attention directed at US stock markets lately. Some believe that after an almost 9.5-year bull cycle, it is about time that the markets shift into correction territory. A number of events are causing stock prices to fluctuate more than usual. Trade tension between the US and China is having an effect on several companies and the way they produce and price goods and services, bond yields have risen to a seven-year high (when bond yields rise stock prices typically decline as investors allocate wealth into the less-risky investment vehicle), political turmoil in Washington and the upcoming midterm elections play a role regarding the future outlook of markets and industries depending on who enters — or leaves — office.
Besides all the facts above, stocks historically experienced above — average volatility during October. Among other reasons, it might be due to:
- Earnings reports,
- Start of US Government fiscal year (October 1),
- Changes in the Chairman of the Federal Reserve, whose term ends every four years in January, and whose replacement is often named in October.
(P.S. Past market disasters like “Black Monday (Oct. 1987)”, “Black Tuesday (Oct. 1929)” and crisis of 2008 (Sep.-Oct.) happened during that month.)
October: The S&P 500 vs. Bitcoin
All of this information is being absorbed into the stock market. The S&P 500 has not passed 2,930.75 since it reached that level on September 20th. And by October 24th the S&P 500 had erased all of its gains from 2018 and closed the day at 2656.10. During October the S&P 500 declined 7.27% total — compare that to September — when the S&P 500 increased by .5958% — or August when the S&P 500 increased by 3.1416%, and you see that October was a relatively volatile month.
On the other hand, Bitcoin — an asset that is known for being volatile — was relatively stable during October — especially in comparison to the S&P 500. During October, Bitcoin declined 4.30% — compare that to September, when Bitcoin dropped -8.56% in price, or August when the Bitcoin price decreased by 7.70%, and you see that Bitcoin had a far less volatile month than usual.
Why was Bitcoin Less Volatile?
Looks like fewer significant events — events that have the ability to affect market price — have been occurring. In addition, it is likely that there are fewer retail investors eager to withdraw their funds like there were when the market first took a turn for the worse.
It seems that a majority of retail investors who were burned by the bear market have already withdrawn their crypto-investments, and that the group of investors who are left in the space are those who believe in the long-term outlook of cryptocurrencies or are not willing to sell their digital assets for less than they purchased them at. Keep in mind, retail investors played a significant role in “crypto-mania.” Retail investors were the prominent group of individuals mindlessly driving the price of cryptocurrencies up as they flocked to the market in droves and invested in literally any token. However, that phase in the industry is long gone, and with it, the funds that those investors dumped and pumped into the market which caused the price to swing wildly are gone too.
As you can see in the graph above, the market cap of Bitcoin seems to plateau at several different points in October, which means less money was entering and/or leaving the market.
Future Outlook
If fewer people are withdrawing their funds and putting new money into the market, we can very well see the price of Bitcoin remain stable until an event takes place or information comes out that gives investors an incentive to invest (or withdraw) more money.
Regarding the stock market, at times when the market is volatile, individuals typically look for safe investments; like bonds, which are often risk-free, utilities which are known not to fluctuate much, and the scarce commodity Gold. But for one of the first times in history, it is looking like Bitcoin, and other cryptocurrencies might be able to provide investors with the market stability and a to be a great diversification tool that they are looking for, the stability that they did not get during October in the stock market. It will be interesting to see if these trends continue as we move into the latter half of Q4.
For more information on digital assets, feel free to reach out to WhitePark Capital at contact@whitepark.capital, and be sure to check out our website www.whitepark.capital
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