Bitcoin Volatility Is Up, Liquidity Stagnant

Bitcoin's price volatility has been a source of doubt about its narrative both as digital cash and as digital gold.

Perhaps bitcoin itself will achieve stability over time, as its liquidity improves with growing investment in the crypto-asset category.

For in 2019, market and network data have told a different story: volatility has increased and liquidity remains stagnant.

Compared with the second half of 2018, this year has been bumpy for bitcoin: the 30-day volatility of daily returns has topped 4 percent on 65 days in the past 12 months.

To measure market makers' enthusiasm for bitcoin, we turn to network data: the aggregate balances of exchange wallets, as a percentage of bitcoin's total supply.

This measure of exchanges' bitcoin flows shows some responsiveness to volatility.

Those points stand out in a flat sea: exchanges' bitcoin wallet balances haven't changed much since declining in 2018, holding around 8 percent, a point first reached in mid-November, 2017.Labeling wallets is an inexact science.

Exchanges' activities on the bitcoin network tend to follow predictable patterns, indicating net inflows.

As the end of 2019 approaches, bitcoin appears to be in stasis.

Bitcoin's volatility has increased, while the percentage of bitcoin engaged in the market has remained flat.