Regarding price fluctuations cryptos are in a world of their own
By Max Gulker, American Institute for Economic Research
Bitcoin is more volatile than other currencies but less than its crypto competitors.
In their brief history, cryptocurrencies have been among the most volatile widely traded assets ever seen. But how do cryptocurrencies compare with each other on simple metrics of volatility? Do some fluctuate in price more than others?
Earlier this year, we compared the volatility of Bitcoin to traditional currencies. We found that the average daily percentage change and standard deviation of Bitcoin’s exchange rate with the U.S. dollar were several times higher than the dollar exchange rate against the euro, yen, pound, and gold.
Now we find that Bitcoin is consistently less volatile than four other widely traded cryptocurrencies: Litecoin, Ripple, Ethereum, and Bitcoin Cash. Looking at simple measures of volatility across digital assets also reveals some common patterns over time and interesting potential trends.
A medium of exchange that is stable in value and highly liquid, so someone can trade it in a pinch without taking a hit, allows us to better deal with uncertainty and helps us plan and coordinate into the future. Assets that are too volatile are therefore undesirable as currencies.
While all five cryptocurrencies we study are still quite new, measures of volatility, and changes in those measures over time, are important in assessing their potential future viability as money.