Bitcoin’s overall price volatility has declined significantly since 2018. Its annualized volatility is now about 46%, down from 84% in 2018.
How Are These Moves Measured?
Traders use ‘sigma’ to measure how far a price move deviates from normal behavior.
For Bitcoin, CoinDesk compared each day’s price movement to its 30-day realized volatility—a measure of how much the price typically fluctuated over the previous month.
A move of at least three times that amount, either up or down, is classified as a 3-sigma day.
In a normal distribution, about 99.7% of price moves fall within three sigma. So a 3-sigma day is rare.
Why This Matters for Investors
Standard risk models, like value-at-risk (VaR), rely heavily on recent volatility.
When markets are calm for a long period, these models may underestimate risk. They suggest the asset is safer than it actually is.
Bitcoin’s declining volatility could encourage investors to increase exposure—only to face sudden, large losses.
These extreme moves highlight ‘tail risk’—the possibility of rare, large losses beyond normal trading patterns.
What Experts Say
Nicolas Quatravaux, head of EMEA at Paradigm, said the market has matured with more institutions, ETFs, and deeper liquidity.
“The average day is calmer,” he said. “But shocks haven’t gone away. Macro events, leverage, and positioning still drive sudden swings.”
Luuk Strijers, CEO of Deribit, noted that standard VaR models do not fully capture tail risk.
“Expected Shortfall is better because it looks at how bad losses get on the worst days,” he said.
He added that 3-sigma risks can be hedged using bitcoin options.
What Triggers These Swings?
Market participants point to two main drivers: macroeconomic shocks and leveraged derivatives positioning.
Quatravaux described a sequence: money rotated into tech stocks, DeFi hacks pushed investors toward volatility-selling products, and then major events like Trump’s campaign, the Iran war, and Fed policy decisions triggered sharp moves.
When traders bet prices will stay stable, they sell options—insurance against big swings—to earn premiums.
These strategies work during calm markets. But when a macro event hits, those sellers are caught on the wrong side. Their rush to cover can turn a small move into a large shock.
Call overwriting—a popular trade where investors sell call options on Bitcoin they already own—is especially crowded. When prices rise, it can trigger large, sudden moves.
Sources & further reading
AI-generated illustration.
