Will cryptocurrency volatility decrease in 2021?

If you’ve been around the crypto markets long enough, you probably know that there is a lot of price fluctuation; lot’s of volatility. For any typical stock trader, the daily swings would cause panic attacks. But crypto users are more resistant to risk. Being an 11-year old market, crypto as an industry is still in a phase of price discovery, adn early adopters have learned how to surf the price waves in a way that helps them increase their position along the way.

The typical investor however, sees the volatility as a barrier of entry. How can anyone purchase Bitcoin when you can lose more than half of your money within a couple of days? That’s totally understandable. In fact, most of us start this way as well. One of the first questions amateur investors ask is whether the market will ever calm down, becoming less risky, similar to other investment options.

In this article we will discuss 2021, and how volatility rates may change during the year. Let’s delve in.

What causes volatility?

As mentioned above, every new investment market goes through a turbulent time until a big enough user base is formed. Crypto is one such industry, and over the past few years we have seen more and more people accumulate virtual coins to participate in its alternative monetary system.

In the earlier days, volatility was even higher than what you are witnessing at the moment. When looking at Bitcoin’s previous market cycles, it is easy to see that each growth phase is smaller in size, and each correction is smaller as well. Bear markets are also more “stable” than they once were, and every 4 years the volatility is decreasing further.

This happens because large bagholders known as “whales” are selling their coins when the price of cryptocurrencies reached their predetermined target. They end up holding less coins, and small market buyers buy up the amounts, spreading it over multiple hands.

The more bagholders of a specific cryptocurrency, the smaller the volatility eventually becomes. We saw this happen with the stock market, bonds, precious metals; pretty much every investment option when observed in retrospect.

So what is the forecast for 2021?

Volatility seems to be increasing in 2021. New investors may seem cautiously optimistic when Bitcoin jumps from $20.000 to $42.000 in less than a month, but there is still a lot of fear when we experience temporary pushbacks, like the most recent that led to a decrease of nearly 30%.

However, when looking at previous cycles, we can see the exact same patterns. Bitcoin grows an average of 150% after each 30-35% dig and keep doing this for the duration of the bull market. This cycle, the pullbacks are smaller when measure in % size, and this is simply because we are seeing more users entering the space.

By all accounts, 2021 is a special year. The year where we finally see a massive interest of institutional and governmental interest in the power of BTC. It is therefore that we may experience a different sort of volatility this year. Many experienced analysts mention that we could see positive market volatility that mirrors 2013, when Bitcoin went from a mere $10 to over $1000 at its peak. Bitcoin pioneers like Dan Held mention that Bitcoin could reach $1 million dollars in this cycle from the increased interest due to the instabilities in our economy. While the target seems wildly speculative, more and more people start to do the math - and it seems to check out! We are set for a wild rollercoaster in 2021, but one that will be more enjoyable than any other year before it (at least for those onboard).

When will volatility decrease?

Every market cycle starts and ends at the moment of each subsequent Bitcoin halving. Each cycle we see more active wallets, more interest from the media, and a higher market cap. Eventually, Bitcoin will reach a price point that will reflect its real value. Some claim that is $400.000. Others believe it could exceed $10 million. However we do believe that, somewhere in the 7-figure range, Bitcoin will finally stabilize in USD price, and only continue increasing at the same pace that the USD devaluates on an annual basis.

When this will happen is a question we cannot answer. While many people are hoping to see this happen before the next halving, we do believe that Bitcoin still has at least one more cycle to go through before it becomes a household name. Anywhere between 2024 and 2028, we could see Bitcoin finally being throned as the best investment opportunity in our lifetimes, and the one that leads to a global economic reset.