A lot has been made recently of the relatively placid Bitcoin price. Circling around the $30,000 level for the best part of five months, the asset, well known for its extreme volatility, has been uncharacteristically steady. 

Looking at implied volatility from the options market, we are currently at all-time low levels. 

And it’s not just Bitcoin. Ethereum, the world’s second-largest cryptocurrency, is also seeing its volatility plummet. While still sky-high compared to most major asset classes, the volatility has been dropping over the last year, with the exception of a brief spike around the collapse of FTX last November. 

Historically, Ethereum and Bitcoin price movements have been highly correlated. While the lockstep relationship has softened in recent times, it remains extremely tight. With volatility, the same patterns have been seen.

However, there have been interesting developments this summer. The next chart shows that, typically, Ethereum volatility has been above Bitcoin’s. Yet such has been the serene nature of the crypto market these past few months that the duo are now displaying nearly identical levels of volatility. In fact, Ethereum has at times dipped below Bitcoin.  

In all likelihood, this is not overly consequential. Yet it does represent a curious development, highlighting the dearth of volatility market-wide. The first answer for why this occurring is a classic summer trading lull, something which is seen in other asset classes beyond crypto, too. 

While the sample size for crypto is small, with Bitcoin only launched in 2009, throughout this brief history, Q3 has brought the lowest crypto trading volumes of any quarter.

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ut the drain is not just this quarter. Spot trading volumes fell markedly in 2022, down 46%. And this year, they have continued to dip, currently at levels last seen in 2020. 

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ence, while a dampening down of the incessant volatility in crypto markets has long been viewed as essential if crypto is to deliver on its potential to achieve genuine utility, it is probably fair to say that the calmer markets of recent are not necessarily a positive. 

Liquidity is extremely thin, and has been since market maker Alameda collapsed in ignominy last November. Interest in the space in general has fallen perceptibly from the peak of 2021, when half the world was locked in their bedrooms without much to do other than trade doggy tokens, or experiment with this suddenly-popular enigmatic new asset class. 

An up-only climate for risk assets certainly helped, the stock market propelled to new highs as money printers hummed and stimulus packages flowed. While the macro climate has certainly picked up this year, we no longer have the perfect storm that 2021 was for crypto markets. 

Despite that, it does not mean the volatility is gone for good. Quite the contrary in fact; it feels inevitable that the trademark swings and violent jumps – one way or another – will return. In fact, with such thin liquidity, it takes less capital to move prices and hence moves in either direction become amplified. 

Ethereum’s volatility dipping below Bitcoin’s may not be the “flippening” that some in the crypto space speculated would one day come to fruition. Rather, it is a signal of the unusually calm times as crypto trucks along amid a regulatory storm, dipping volumes and a summer lull. But it doesn’t mean this is a “new normal”. Volatility will return, it’s just a question on when, and these peaceful times will then seem like a distant memory.

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