Crypto Markets Analysis: Crypto Volatility Declines Despite Regulatory, Inflationary Concerns

The volatility of bitcoin (BTC) and ether (ETH) has been declining in recent days, despite an increasingly uncertain regulatory and interest rate environment.

Since Feb. 24, the average true range (ATR) for BTC and ETH has fallen 16% and 11%, respectively. ATR is a measure of market volatility.

By comparison, the ATR for traditional financial indices (S&P 500, Nasdaq Composite, Dow Jones Industrial Average) declined 2.7%, 2.1% and 1.5%, respectively, over the same period.

The reduced volatility follows last week’s unexpectedly hot inflation data, which offered compelling evidence the U.S. Federal Reserve will need to continue its current hawkish pace of interest rate hikes for an extended time.

To be sure, markets still anticipate the Fed's Federal Open Market Committee will raise rates by 25 basis points (bps) during its March 22 meeting, although the probability of a 50 bps increase has ticked up slightly. Still, inflationary fears are arguably more concerning than regulatory ones. India, which is currently president of the G-20 group of nations, appears to be pushing for a coordinated global effort to regulate cryptocurrencies. The United States supports the initiative.

A synthesis paper to be published in September by the Financial Stability Board (FSB) and the International Monetary Fund (IMF) will provide more detail about a regulatory framework.

Crypto markets have not responded to either with a spike in volatility. Rather, BTC and ETH’s Bollinger Bands suggest the opposite. Bollinger Bands follow an asset’s 20-day moving average, simultaneously plotting prices two standard deviations above and below the average. They reflect increased or decreased volatility.

It's been 43 days since bitcoin or ether prices have breached the upper range of their respective Bollinger Bands. The range of BTC’s Bollinger Bands currently spans from approximately $21,000 to 25,600. For ETH, the current range runs from $1,490 to $1,750.

Current prices for both are at their 20-day moving averages, further highlighting the recent contraction in volatility.