Crypto Volatility: What Causes It and How To Manage It

By Nick Marshall


If you were a committed crypto skeptic and detractor of decentralized finance, May 2022 was a good month. Likewise, if you owned just one of the estimated 20% of Bitcoin in circulation that are on lost or stranded wallets, things have been a lot more bearable since November 2021, when Bitcoin hit a peak value of $68,991. That’s because the 2022 crypto crash — during which the value of Bitcoin alone dropped 30% in one day — appears to have vindicated anyone who warned about crypto volatility, or simply missed their chance to invest when it was valued at just $0.09 in 2010. Or has it? Let’s explore what makes crypto volatile and why some see that as part of the appeal.  

The Evidence for Crypto Volatility

You don’t have to read the crypto charts to know that cryptocurrency has lost a lot of value and perhaps credibility since 2022. A deluge of memes and ad campaigns have been quick to point out the volatility of crypto and stoke hysteria about potential losses. For the record, the cryptocurrency market has lost $1.5 trillion since November 2021. Yet in context, cryptocurrency has a long way to go before it matches the worst slides of other investments that are traditionally seen as less volatile. 

Rookie Numbers

At its lowest point, Bitcoin was down 70% against its peak value. The 1929 Wall Street Crash, by contrast, wiped 89.2% off the Dow Jones Industrial Average, while the Dot Com bubble of the 1990s saw the NASDAQ drop 78% between 2000 and 2002. Go back to the 1630s and the Dutch Tulip bubble established a record — a 99% price plunge — that is unlikely to ever be matched. 

What Causes Crypto Volatility? 

The defining feature of crypto assets, which both deter and attract investors, is that it has no intrinsic value. Crypto is not pegged to a commodity, business or fiat currency (with exceptions). Instead, the value of crypto assets is determined by the level of belief investors have in its growth. That makes it susceptible to volatility  because of the following factors:

  • It’s a new asset. Bitcoin made its debut as recently as 2009, so the market has only a relatively short period of historical data to analyze before deciding whether to panic or “Hold on for dear life.”
  • Trading volumes are still low, especially for some of the lesser known cryptocurrencies. 
  • News and social media are 24/7 and global. There’s no breathing room for nervous markets and a single Tweet can wreak havoc (For example, when Elon Musk famously helped Dogecoin grow from a seemingly worthless “joke” to a $50 billion success story). 
  • Stablecoins like Terra which are tied to the dollar are vulnerable to interest rate hikes, even if the impact of inflation on cryptocurrency is usually flagged as one of crypto’s biggest advantages. 
  • Lack of institutional investors (and regulation). Although the likes of Goldman Sachs and Morgan Stanley are now active in the cryptocurrency market, there isn’t enough Wall Street ballast to steady the ship and steer through stormy seas.

Volatility is hardly restricted to cryptocurrency. Research shows that even gold, which is often seen as a safe commodity in a volatile market, has an 18-year volatility of around 20%, while stocks in companies from industrialized countries posted a figure of 19% over the same period. The key difference is that stocks at least represent ownership and are backed by assets. If those stocks are in a large-cap global corporation such as Apple or Amazon, the intrinsic value is high and the volatility low. 

How Volatility Is Measured

Volatility measures how much the value of any asset or commodity fluctuates over time. Analysts can either look at the historical volatility of an asset, whether over the last 30 days or five years or forecast the implied volatility in the future, based on global events, market conditions and economic trends. An asset can either be measured against the market as a whole or against its own historical average to establish a volatility baseline. Either way, more volatility indicates more risk … but potentially more rewards too. 

Betting Smart About Crypto Volatility

Compared to the slow and steady growth of bonds or equities, volatile crypto assets appear to offer a greater opportunity to unlock higher returns in a shorter period of time. That’s why there are as many rallying cries to “buy the dip” as there are memes ridiculing unlucky crypto investors when the market crashes. Ultimately, if the volatility of Bitcoin, Ethereum or any of the other types of cryptocurrency in the digital market is going to fluctuate wildly over time, the secret to success should be patience and portfolio allocation to spread risk. 

Where crypto investors do not have to accept any risk, on the other hand, is in securing proof of ownership of their assets. With TransitNet, you can benefit from the world’s first offchain title registry to protect your crypto assets in the event your password is lost or stolen. That way, you won’t be tearing your hair out the next time crypto rallies and the market hits new highs. 


Coinbase – What is volatility?

Xetra Gold – How volatile is gold compared to other asset classes?

The New York Times – Cryptocurrencies Melt Down in a ‘Perfect Storm’ of Fear and Panic

The New York Times – Lost Passwords Lock Millionaires Out of Their Bitcoin Fortunes

CNBC – Bitcoin plunges 30% to $30,000 at one point in wild session, recovers somewhat to $38,000

The Atlantic – How Crypto Disappeared Into Thin Air

CNBC – Bitcoin has lost more than 50% of its value this year. Here’s what you need to know

Good Financial Cents – Top 10 WORST Stock Market Crashes in History

Investopedia – Asset Bubbles Through History: The 5 Biggest

CNBC – As Wall Street banks embrace crypto, high-flying start-ups look to lure top finance talent