Decreasing Bitcoin price volatility

[tinopener]

I've read a couple of times recently that institutions coming on board is going to make the price less volatile.

Assuming it is true, does it work (very loosely) something like this?

-Institution buys $1bn worth of Bitcoin.
-Bitcoin price jumps up.
-Institution holds that Bitcoin essentially taking it off the market.
-Buyers' money now equates to smaller units of Bitcoin (e.g. 0.9 BTC instead of 1 BTC).
-Those smaller transactions affect the overall price less.

Edited 00:05am Here is an article I just found describing the phenomenon in better detail:

"There are all kinds of reflexive dynamics in these assets that ironically will lead to less volatility the higher they go,” Peters said in an interview during Bloomberg’s The Year Ahead conference. “As the prices are going higher, you are drawing in new types of investors with stronger hands,” noting that some level of volatility will likely remain."

https://www.bloomberg.com/news/articles/2021-01-28/crypto-whale-one-river-says-volatility-to-ease-as-prices-rise

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[Bitcoin_Arena]

Volatility has nothing to do with money getting taken off the market. If this was the case with the increased adoption of bitcoin as compared to a decade ago, you would think the markets be less volatile now, but it's still the same as 10 years ago.

Price Volatility has more to do with the traders (People buying and selling) and how much they are buying or selling. Those who HODL the coins will keep them, but they won't affect how volatile the market prices will be.

Bitcoin is not just limited to 1 BTC, one can still own and easily transfer mBTC, bits, sats etc

[Willitivity]

I've read a couple of times recently that institutions coming on board is going to make the price less volatile.

Assuming it is true, does it work (very loosely) something like this?

-Institution buys $1bn worth of Bitcoin.
-Bitcoin price jumps up.
-Institution holds that Bitcoin essentially taking it off the market.
-Buyers' money now equates to smaller units of Bitcoin (e.g. 0.9 BTC instead of 1 BTC).
-Those smaller transactions affect the overall price less.

Bitcoin is actually more volatile these days compared to earlier. What I mean is that we have much more bigger price swings these days. it's not about the fact that we have institutional investments, but because cryptocurrency markets have evolved in the last few years. I also agree that smaller transactions have little to no impact on the overall market. Barely affects the volatility.

<snip
Price Volatility has more to do with the traders (People buying and selling) and how much they are buying or selling. Those who HODL the coins will keep them, but they won't affect how volatile the market prices will be.

Yes, coins in cold wallet plays no role in market volatility since it's not actively used to trade. Similar to the way institutions hold bitcoin assets. It only gets bitcoin volatile when they send to exchange and trade it.

[sheenshane]

Volatility is a normal thing in Bitcoin, because of the fact that there's no infinite growth of Bitcoin price, it has sometimes a pullback right after having a massive plunged in the market.  Those who have a long experience in Bitcoin holding must know about this situation and they are already aware that Bitcoin has always a price manipulation.

If Bitcoin keeps going higher it means the demand has been increased, and the value that pegged to the dollars also increased the reason Bitcoin becomes so expensive, that why there's a fraction number that easily to divide and determine the value of per Bitcoin if ever there's someone who wants to transact with a tiny amount using Bitcoin.

Speaking of the denomination of Bitcoin, here's Bitcoin Table Unit.

[tinopener]

Speaking of the denomination of Bitcoin, here's Bitcoin Table Unit.

Thanks. Yep, I hold Bitcoin and know about the divisibility. I just used 1btc and 0.9btc as an example to demonstrate less dollar purchasing power as the price increases.

Anyway.... I've edited the OP with an example of one of the articles where I read about this possible decrease in volatility.

[wxa7115]

Volatility has nothing to do with money getting taken off the market. If this was the case with the increased adoption of bitcoin as compared to a decade ago, you would think the markets be less volatile now, but it's still the same as 10 years ago.

Price Volatility has more to do with the traders (People buying and selling) and how much they are buying or selling. Those who HODL the coins will keep them, but they won't affect how volatile the market prices will be.

Bitcoin is not just limited to 1 BTC, one can still own and easily transfer mBTC, bits, sats etc

To all of these I will add leverage, if traders were not allowed to use leverage then in a way the volatility could be reduced somehow by the fact that we have more holders that are not willing to move their coins, but when people that have one bitcoin are allowed to use 100 times that amount in leverage and you multiply this many times over by the thousands then we can clearly see why the volatility does not decrease.

And if to this equation we add that the supply of bitcoin is way more rigid than what you can see in fiat currencies and also that the demand explodes from time to time then I think it is safe to say that the volatility of bitcoin will not decrease significantly for a very long time.

[MrMcKinney]

Volatility has become a name for BTC, we're not actually decreasing in volatility but rather adding up to it.

[mk4]

“As the prices are going higher, you are drawing in new types of investors with stronger hands,” noting that some level of volatility will likely remain."

This quote is pretty spot on. Don't get me wrong, volatility won't be leaving bitcoin for a good amount of time, but institutional investors and corporations getting in gives me a bit more hope that there's probably slightly more chances that we won't be seeing like past levels of huge drops in price. Institutional investors and corporations are simply not like retail investors that panic at every huge drops in price.

[Innerpumper]

because institutions will not manipulate the price of bitcoin. They come in and properly invest it won't make bitcoin go up directly. But it will look stable and skyrocketing. and I think it would be right to look flying after a few months they come in. Currently, we are only entering the second month of 2021. It's just a presede, man, it's a good start.

[pooya87]

I've read a couple of times recently that institutions coming on board is going to make the price less volatile.

Since none of them are actually participating in the market they can not affect the price either. It is something similar to all the OTC trades that never had any meaningful effects on bitcoin price. In fact these institutional investors are also OTC trading instead of going on an exchange and placing buy/sell orders which means they can not affect the price. Not to mention that after they buy bitcoin they go away and create their own centralized market where they customers buy bitcoin from them and receive IOUs again not affecting anything about bitcoin.

-Institution buys $1bn worth of Bitcoin.
-Bitcoin price jumps up.

One time purchace, one time jump!

-Institution holds that Bitcoin essentially taking it off the market.

less than 20000 ($1 billion) bitcoin taken off the market is not a big deal!

-Buyers' money now equates to smaller units of Bitcoin (e.g. 0.9 BTC instead of 1 BTC).
-Those smaller transactions affect the overall price less.

The amount of money and the size of the order books didn't change in your scenario hence the volatility doesn't change.

[davis196]

Institutional investors can't lower the Bitcoin price volatility.Mass adoption across multiple small investors and ordinary people probably can lower the price volatility.
Institutional investors will just buy and HODL in the long term,which will remove some bitcoins out of the market circulation,therefore lowering the supply will increase the price volatility.
On the other hand,mass adoption and using BTC fore more daily purchases will increase the BTC market circulation and probably lower the Bitcoins held by the HODLers.This increased BTC supply will lower the price volatility.

[Jawhead999]

because institutions will not manipulate the price of bitcoin.

I don't think so, some institutions buy a large amount of Bitcoin or can be called as whales is actually manipulating the price of Bitcoin. They hold significant amount Bitcoin, they also can to sell large amount Bitcoin "in a single time" it will make massive dump on Bitcoin.

Also those institutions didn't publish/mention their address, we can't know for sure they're purely holding or already sell some amount portion.

[yazher]

In this current state of bitcoins in the market, I think the volatility right now is all history. This is the moment we are waiting for and the price from this point will continue to rally up to its limit. No wonder, those big-time companies, and celebrities have participated in this new era. 2021 is the year of the Crypto industry. so what about you guys, do you still believe that the price will fall at any moment? well then, I don't think it will gonna happen again, or let's say it will not happen soon because as we witnessed here, everything seems right from the start of this year and earlier I witnessed something I never expected before. Our local news published a report about Bitcoin and it was the first time seeing it that way, I mean, in a positive way. This year has a lot of surprise guys, we better use this opportunity or is now or never for us after this.

[lovesmayfamilis]

The more we see the mistrust in the dollar, the more often we will see institutional investors who buy assets even for 50 thousand dollars or more. Today, investors understand that gold is becoming obsolete as a storage medium, and bitcoin is becoming more and more recognized by different segments of the population. Celebrities periodically generate interest in investing, thereby encouraging everyone to become part of the Bitcoin community. For large investors, bitcoin is a financial investment, around which a fuss is created, but their motivation is naturally that the cryptocurrency is growing, and financial interests in terms of further increasing their profits are paramount. Many are confident that institutions are smart players, and they can reduce volatility, but factors such as widespread adoption of bitcoins and the macroeconomic situation also affect the price movement upward.

[oliviarobert]

A prolonged period of consolidation of the low volatility price often paves the way for a big move on either side. The longer the recovery, the more violent the breakout is.

However, the volatility metrics have not yet reached abnormally low levels, while the cryptocurrency is stuck in a narrowing price range.

[kryptqnick]

I think what might stabilize the price is more and more people being Bitcoin hodlers. Then it would be less likely that the majority would react similarly to major news and events, triggering bull or bear trends. But that's just my intuition, it might not actually be true. As for the dynamics of volatility, I wonder if anyone figured out a way to calculate it and give proper assessment and whether it's a fact that Bitcoin is not more stable nowadays than in early years. But when I see the charts, it seems to me that the price was more jumpy in 2013-2014 than it was in 2018-2019 if we're talking about percentage. And I couldn't fine the data about the early years of Bitcoin, but I think the change in percentage was even higher.

[Ucy]

Better to decentralized things that affect the price. I would avoid anything that can centralized (or potentially centralized) Bitcoin in any way. I believe a system/org that regulates price should be very Transparent, decentralized, Based on Good rules approved via Consensus, and is bounded by other important Bitcoin Principles.

The Right System should keep the price volatility moderate without necessarily changing anything on the main Network/System.

[JohnSmithK]

Talking about bitcoin volatility, its has shown some volatile behavior in recent days just after some tweets or companies showing interest in buying them. Being not openly acceptable these day bitcoin use has increased its trade for buying things.

[livingfree]

Volatility has become a name for BTC, we're not actually decreasing in volatility but rather adding up to it.

I think OP is right. Volatility is becoming lesser as the institutions are coming for the meantime. But that's just temporary, we'll never know if these institutions will come at once and gonna start to dump altogether.

But the longer that we're watching bitcoin's market, the stronger that it gets from time to time. I'm now looking forward to the future, maybe after 3 years which is going to be the next halving and a year after that, we might see the same surge in bitcoin's price.

[franky1]

let me make this simple.
the most easiest way to make a price less or more volatile. is to change in the number of decimals of orderline pricepoints gap
$51,500.12564  requires 87436 orderlines to fill just to get the price to 51501(87k people outbidding each other)
$51,500.16        requires 84 orderlines to fill just to get to the price of 51501(84 people outbidding each other)
$51,500            requires just 1 orderline to fill just to get the price of 51501(1person outbidding another)

..
bitcoins orderbooks of exchanges were like
2012: $100: 10btc   (~$1k to fill an order)
2016: $1000: 1btc   (~$1k to fill an order)
2021: $50k: 0.02btc(~$1k to fill an order)

so as you can see if an average investor had $1k in 2012,2016 or 2021 they could move the price by a pricepoint

so the solution is to have more order pricepoints in more decimal figures to require more order fills to move the price by any significant amount

so petition/demand exchanges use more than 2 decimals per order price and you will see the volatility change
as it allows people to outbid each other multiple opportunities without pushing the price up fast

or if you want the price to go up fast. less decimal opportunities to place a bid