32k Dollar per coin: Comparing the volatility of cryptos with other assets shows their growth potential

Recently, with the Chinese decision to go against BitCoin trade in China and Jamie Dimons dubious stunt to crash the value of the currency, the overall volatility of the crypto currency was unusually high. There were several days on which the spread between the highest and the lowest bid of the day exceeded 25%. A lot, especially when you look at the value of one coin that still is well above 4.000 Dollar and the overall market cap, now in the dozen of billions.

But even without those externalities, BitCoins volatility and also the volatility of other crypto currencies is still very high. Despide the overall high market cap, the fact that they are now out there since several years, it doesn't look like the crypto market is headed the direction of other assets in terms of volatility.

BitCoins volatility compared to other assets

This still high volatility may be a useful indicator to determine how much the value of BitCoin could rise compared to other assets. For the following comparison I took the Bitcoin and Ethereum as examples for crypto currencies, as well as gold, the German TecDAX index and the Dollar-Euro pair.

All three classic assets represent aspects of crypto currencies. Gold stands for the value storage, the TecDAX for the technological component and the Dollar price for the currency aspect.

For the comparison and the charts I used the data from the last ~500 days, or May 2016. All values represent 10-day-averages of the spread between the highest and the lowest bid in percentage.

The first chart shows the three classic assets which are moving along with a high correlation as you would expect. Somewhen in March this year (the middle of the chart) the volatility goes down. I can only guess, but it looks like the central banks did something there to "optimize" whatever. (note: whatever it was, it likely wasn't in connection with cryptos.)

The second chart shows BitCoin and Ethereum, both relativ to the price of Euro. Here too you can see something happening in March 2017. The development is directly reversed. While the classic assets' volatility went down, the cryptos' volatility went up.

But much more important for this comparison than the event that is visable in the chart is the fact that the volatility of cryptos still is incredibly much higher - which was the case even before March 2017. You can also see in this chart that both cryptos show a comparable volatility. It means, they - and also others - are moving along in the market, which is a strong sign that they are making up their own asset class, since those aren't coincidental movements.

The volatility gap is yuuuuuge

Here's the volatility ratio between cryptos and the other assets:

This is a lot. Even the lowest margin is well above 100%. In average the volatility spread is at 560%, whereas the value for before March 2017 is at 333% and the value from that date onwards is at 900%.

What does this mean for the further growth of the Bitcoin price?

Well, if you only look at the average of the daily price volatility, Bitcoin (and other crypto currencies) could increase their value by several hundret percent. The lower end of this increase is somewhere at a doubling of the value up to about 8.000 Dollar per coin and the upper end is about five times as high. BitCoins could reach a value of 32.000 Dollar, until it reaches a daily price volatility that can be considered "normal" for such an asset.

For Ethereum, right now standing at about 300 Dollar, the realistic potential derived from its average volatility is somewhere between 600 and 2.400 Dollar.