Why bitcoin swings so widely

Volatility is a measurement, not a value judgement. It states how far the daily returns of an asset spread around their own mean, and it is usually expressed as a standard deviation. For bitcoin, figures of that kind have been published by central banks and supervisory authorities, and they come out higher than for shares, bonds, oil or gold.

What volatility measures and what it does not say

The European Central Bank set out how it calculates in Occasional Paper No. 223 of May 2019. Volatility there is the 90 day standard deviation of daily returns, calculated on daily data from 1 January 2017 to 31 January 2019. For that period the historical volatility of crypto-assets lay above that of broad European equity and bond markets, and above that of oil and gold as well. In the same study the ECB records that bitcoin swung less than many smaller crypto-assets.

What matters is what this measure does not do. It describes the past of a fixed window, here 90 days, and it says nothing about direction. An asset with high volatility can swing both ways. And a range of movement measured over the years 2017 to 2019 cannot be extended into the future. Anyone wanting to recalculate volatility will find the terms in the glossary, and the volatility simulator shows how different ranges of movement work through to the value of a portfolio.

Which falls are documented for bitcoin

In Bulletin No. 69 of 20 February 2023 the Bank for International Settlements analysed a data set covering more than 200 trading apps in 95 countries for August 2015 to mid December 2022. It states: between August 2015 and the peak in November 2021 the bitcoin price rose from 250 to 69,000 US dollars. Over the course of 2022 the prices of many crypto-assets including bitcoin and ether fell by around 75 per cent, and more than 1.8 trillion US dollars of market value dissolved.

Two episodes stand out. After the collapse of the algorithmic stablecoin TerraUSD in May 2022, the same source reports that more than 450 billion US dollars of value were destroyed between May and June. In the course of the collapse of FTX in November 2022, bitcoin, ether and other crypto-assets lost more than 20 per cent within a few days, and a further 200 billion US dollars disappeared. In its analysis of 4 October 2022, the European securities supervisor ESMA puts the fall of the whole market up to July 2022 at more than 60 per cent within half a year, and the market decline around the TerraUSD collapse and the insolvencies of several large crypto platforms at around 50 per cent.

Volatility next to gold and a share index

For a direct comparison there is one current figure. In its special analysis on financial stability of May 2025 the ECB writes that bitcoin prices in 2024 swung twice as widely as gold prices and almost three times as widely as the S&P 500. That is a ratio, not an absolute range of movement, and it holds for that one year. The ECB names neither a method of calculation nor a time window for this ratio, so it cannot be recalculated from the publication. The overview below lists only values that appear in the sources named at the end.

The table shows the past. None of these values says anything about the coming month.

Where the large swings come from

Four points come up in the sources again and again. First, size: the ECB put the crypto market in May 2022 at less than 1 per cent of the global financial system, after the market capitalisation of all crypto-assets had passed 2.5 trillion euro at the end of 2021 and the market capitalisation of unbacked crypto-assets had fallen by 1.3 trillion euro since November 2021. In a small market, single large orders move the price more.

Second, there is no inner return. A crypto-asset pays no rent, no dividend and no coupon on which a price could be anchored. The joint warning by ESMA, EBA and EIOPA of 17 March 2022 puts it like this: the price often depends solely on consumer demand, because backing assets or other tangible value may be absent.

Third, leverage and concentration. ESMA names easier access to leveraged products, particularly for less experienced investors, as a reason why swings turn out sharper. Fourth, the behaviour of large holders: for the days after the events of May and November 2022 the BIS observed that addresses holding more than 1,000 bitcoin reduced their holdings, while addresses holding less than 1 bitcoin added to theirs. That observation concerns groups of addresses, not individual people, and it proves no intent.

What wide swings mean for a savings plan and for your share

For the same bulletin the BIS ran a simulation: every new user buys bitcoin for 100 US dollars in the month of the first app download and in every month after that. The result up to December 2022: more than four fifths of these users would have made a loss, and the median user would have lost 431 US dollars, so close to half of the 900 US dollars paid in. That is a model calculation with fixed assumptions, not a measured portfolio balance.

In practice that means two things. Buying regularly spreads the moment of entry, but it does not lower the risk that an asset falls for good or goes to zero. And a share that hurts in a fall of 75 per cent was too large before the fall. How an instalment counts for tax and what a savings plan can achieve is set out in the piece on the crypto savings plan; the question of the right share is dealt with in the piece on the crypto share of a portfolio.

How to test what loss you can carry

Convert the figures to your own amount before you buy. Take the fall of around 75 per cent from 2022 and apply it to the sum you plan to put in: 1,000 euro would become 250 euro. 5,000 euro would become 1,250 euro. Ask yourself whether you can do without that amount for twelve months or longer, and whether in the worst case you could write it off in full.

After that, check three things: whether a reserve for unexpected costs sits in an account you can reach at any time, whether debts at a higher rate of interest are outstanding, and whether you would still think the purchase right if the price then fell for a year. The European supervisory authorities put the core question briefly in their warning of 17 March 2022: can you afford to lose all the money you put in? Anyone who cannot answer that with yes already has the answer.

Frequently asked questions

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