Is Bitcoin Too Volatile? Understanding Bitcoin’s Price Action

‍This is the third article in the Common Bitcoin Myths and Misconceptions Debunked series. If you missed our previous articles, you can check out the most recent one here.

Disclaimer

This article is for informational purposes only. The opinions expressed in this article may differ from those expressed by MARA Holdings, Inc. (“MARA”), its officers, employees, directors or advisors or their affiliates. The information in this article does not constitute investment, legal, accounting or other advice or information by MARA or its officers, employees, directors or advisors or their affiliates. The information herein has been obtained from sources believed to be reliable, but MARA and its affiliates do not warrant the completeness or accuracy of the information stated herein. Outlooks and past performance are not guarantees of future results. The information in this article may change without notice and is not guaranteed to be complete, correct or up-to-date, and it may not reflect the most current developments.

Introduction

Bitcoin is often scrutinized for its high volatility, a reputation rooted in its historical price fluctuations. Yet, as the asset matures, its volatility is diminishing, drawing it closer to the stability of traditional financial assets. While volatility is often viewed negatively, it plays a crucial role in price discovery and market adoption. For investors assessing bitcoin’s long-term potential, understanding its volatility—past, present, and future—is crucial.

Bitcoin’s Historic Price Events

In its early years, bitcoin experienced dramatic price swings driven by major market events, exchange failures, and regulatory uncertainty. Key moments include:

These fluctuations established bitcoin’s reputation for volatility—a characteristic common among disruptive technologies. Similar to the early years of high-growth companies like Amazon and Tesla, bitcoin’s significant price fluctuations are simply the growing pains of a maturing asset class.

Price Discovery & Market Volatility in Bitcoin & Other Assets

Volatility is an inherent part of the price discovery process as buyers and sellers work to settle on an asset’s value. Consider Amazon, which lost nearly 90% during the dot-com bust before becoming a tech giant, or Tesla, which endured multiple 50% drawdowns on its path to success. Like these assets, bitcoin's volatility has decreased as its value has become more widely recognized and more integrated into global finance. Recent data reveals bitcoin's price volatility has been comparable—and often lower—than established technology companies like Meta, Tesla, and Nvidia.

Bitcoin’s Volatility is Trending Lower

Bitcoin's realized volatility, which measures price fluctuations over a given period, has declined significantly from its early days of triple-digit percentage swings. Several key factors have driven this reduction:

• Increased Market Capitalization & Liquidity: A larger market with higher liquidity and trading volumes helps absorb shocks.

• Broad Financial Integration: The increasing adoption by mainstream financial markets has led bitcoin to behave more like traditional asset classes.

• Institutional Participation: A growing number of institutional investors contribute to market stability.

The 200-day moving average is another key indicator of bitcoin's long-term growth. It smooths out short-term volatility to reveal a trend marked by higher highs and higher lows. This metric serves as both a psychological and technical support level that helps investors distinguish between temporary market noise and enduring trends.

Bitcoin's Supply Dynamics & Market Stability

Unlike traditional assets, bitcoin’s supply is unaffected by demand because its issuance is predetermined by a decentralized algorithm rather than being responsive to market prices. Bitcoin has a fixed maximum supply of 21 million coins with scheduled halvings that gradually reduce the rate at which new coins are introduced. Other assets often see increased production when prices rise, as higher prices incentivize suppliers to expand output, dampening volatility but limiting upside. For example, if gold prices were to increase dramatically, the world may find ways to mine more gold, potentially from deposits that were previously unprofitable to access. Bitcoin’s immutable supply mechanism means that any price changes in bitcoin are driven almost entirely by shifts in demand, ensuring that its volatility more accurately reflects genuine market sentiment.

Bitcoin’s fixed supply naturally encourages investors to adopt a long-term holding mentality, which is clearly reflected in the asset’s growing base of dedicated long-term holders. On-chain data reveals that over 62% of bitcoin’s supply has not moved for at least a year, indicating that investors are committed to holding the asset over the long term.

Comparisons with Mature Assets Classes

Bitcoin has consistently outperformed traditional investments, emerging as the top-performing asset in 11 out of the past 15 years.

Bitcoin’s returns are especially striking when evaluated on a risk-adjusted basis. A 2024 report from Fidelity highlighted that bitcoin’s volatility fell below that of 92 stocks in the S&P 500. Moreover, range-based realized volatility indicates that bitcoin's recent price fluctuations have been more stable than hundreds of stocks within the S&P 1500.

Bitcoin's Sharpe Ratio—which measures risk-adjusted returns by comparing excess returns to volatility—has outshined traditional investments like stocks, bonds, and gold. A higher Sharpe Ratio indicates that bitcoin offers a superior return-to-risk ratio, making it an attractive option for those seeking to optimize returns while balancing risk. These risk-adjusted returns highlight that bitcoin’s historic volatility has not prevented strong long-term performance.

Institutional Adoption & Market Maturity

The introduction of bitcoin exchange-traded funds (ETFs) has significantly increased liquidity and market accessibility. These ETFs are among the most successful ETF launches in history, surpassing gold ETFs in market capitalization within a year. Major financial institutions like BlackRock, Fidelity, and VanEck acknowledge that bitcoin has a place in traditional portfolios, while pension funds and sovereign wealth funds have started bitcoin allocations of their own. For example, BlackRock is incorporating a 1% to 2% allocation of the iShares Bitcoin Trust ETF (IBIT) into its target allocation portfolios designed for investors with higher risk tolerance. These institutions are known to generally have long investment horizons, aligning with the existing trend where much of bitcoin's supply has remained unmoved for more than a year.

Global & Local Developments

Despite the influx of new altcoins and trading pairs, bitcoin's market dominance has grown from roughly 50% to 60% of the total crypto market capitalization over the past year. This growing dominance demonstrates bitcoin's resilience and maturity, leading to reduced volatility as crypto liquidity concentrates in the leading digital asset.

Global regulatory developments continue to shape bitcoin’s market behavior. Countries around the globe are actively refining their legal frameworks for digital assets. On March 6, 2025, by Executive Order (EO), the WhiteHouse established a U.S. Strategic Bitcoin Reserve with previously possessed bitcoin. The EO advocates for budget-neutral strategies for the U.S. government to acquire additional bitcoin. This landmark decision marks a historic moment in U.S. monetary policy, positioning bitcoin alongside traditional strategic reserves like gold and petroleum. Other countries including Brazil, Russia, and Argentina are also considering adding Bitcoin to their national reserves as a strategic asset. Many have already amassed a significant amount of bitcoin:

Beyond establishing a Strategic Bitcoin Reserve at the federal level, nearly half of U.S. state governments have also introduced legislation to incorporate bitcoin into their own reserves. Recent measures, such as the repeal of SAB 121, have removed barriers for banks to hold and lend against bitcoin, paving the way for broader institutional adoption. Additionally, the SEC has established a new Task Force to develop clear regulatory guidelines and facilitate realistic paths to registration for companies in the digital asset space. Ultimately, the implementation of clearer regulatory frameworks should further decrease market uncertainty, creating a more stable environment for bitcoin adoption to continue.

Conclusion

Bitcoin’s evolution from a highly volatile and speculative asset to an increasingly stable component of global financial markets exemplifies its resilience and long-term value proposition. While early price fluctuations were driven by market immaturity, regulatory uncertainty, and speculative trading, the asset has since demonstrated increased price stability, driven by expanding market capitalization, institutional participation, and deeper integration into traditional financial systems.

This declining volatility reflects bitcoin’s maturation into a legitimate asset class with unique characteristics—notably its fixed supply, decentralization, and growing base of long-term holders. These factors contribute not only to market stability but also to bitcoin’s appeal as a hedge against inflation and a tool for portfolio diversification.

Volatility is not inherently bad for emerging asset classes but rather a natural part of their evolution. It plays a critical role in price discovery, enabling markets to accurately assess value over time. Bitcoin’s risk-adjusted returns, better than many traditional assets, highlight that volatility does not prevent strong long-term performance.

As regulatory frameworks solidify and mainstream adoption accelerates, bitcoin is well-positioned for increased market stability without compromising its potential for substantial returns. Bitcoin represents more than a volatile digital asset—it stands as a transformative tool at the intersection of capital and technology.