Bitcoin’s notorious volatility has significantly decreased, with its volatility index dropping to approximately 35 from a peak of 120 in 2021. Trace Mayer, the creator of the Mayer Multiple, argues that this reduction is indicative of the cryptocurrency’s increasing economic stability and institutional acceptance.
In a recent interview with CoinDesk, Mayer stated that the diminishing volatility should not be perceived as a sign of weakness. Instead, he attributes it to the asset’s maturation and the substantial institutional investment it has attracted. He remarked, “Gary Gensler said he was going to ‘tame bitcoin.’ And we’ve seen the volatility come down,” referring to regulatory efforts aimed at the digital currency.
Mayer believes that the market’s growth has made it less susceptible to erratic price movements. He illustrated this point by comparing the market’s liquidity to a barbell, stating, “The barbell is getting heavier. It’s not a 50-pound weight anymore. It’s a 2,500-pound weight.” This shift is largely driven by the mechanics of the options market, particularly through the practice of call-selling.
As institutions sell covered calls against their bitcoin holdings to generate upfront income, they create a stabilizing effect on price fluctuations. Market makers, who take the opposite side of these trades, are compelled to hedge their positions, which can lead to a natural ceiling on price spikes. Mayer explained, “When you’re able to come in and sell call volatility into the market, the market makers are going to have to do negative delta. That negative call wall is like adding weight on the barbell. The price doesn’t necessarily go up, but the total economic substance of that asset has increased.”
The Mayer Multiple, a ratio Mayer developed eight years ago, compares bitcoin’s current price to its 200-day moving average. A reading above 1 indicates that bitcoin is trading above its long-term average, while a reading below 1 suggests it is trading below it. Currently, bitcoin’s value stands at 0.94, just under its long-term trend. Mayer noted that the standard deviation bands, which indicate the typical price movement range, have significantly compressed as trading history accumulates.
In the past five years, the first standard deviation above the mean is around 1.3, with two and three standard deviations at 1.6 and 2.13, respectively. This contrasts with earlier periods, where price multiples were much more extreme, suggesting that bitcoin is maturing as an asset class.
Mayer’s involvement with bitcoin options dates back to 2017 when he began trading physically-settled options on LedgerX, one of the first regulated crypto derivatives exchanges. The market for these products has since expanded, with various investment vehicles now including leveraged ETFs and corporate holdings of bitcoin.
Mayer views the current lower volatility as a positive development, as it signifies bitcoin’s transition from a speculative asset to one that can be integrated into investment portfolios by institutions and family offices. He remarked, “In order to get that buy-in, you kind of have to have something that’s really boring, like gold.” He noted the increasing attendance at industry conferences as evidence of this maturation, highlighting that attendance has surged into the tens of thousands in recent years.
While Mayer acknowledges potential risks to bitcoin, such as network security concerns and the threat posed by quantum computing, he remains optimistic about its future. He pointed out that the bounty for discovering a significant exploit in bitcoin has yet to be claimed, and he emphasized the resilience of its proof-of-work structure.
Looking ahead, Mayer continues to advocate for bitcoin over gold, citing its fixed supply of 21 million coins as a key advantage. He stated, “With gold, higher prices bring more supply. That’s not the case with Bitcoin, and we don’t know what technologies might pose a threat to gold’s dominance. But we know Bitcoin is going to be 21 million.”
Trace Mayer asserts that bitcoin's declining volatility reflects its growing institutional adoption and economic stability, indicating a maturation of the cryptocurrency market. He emphasizes that this trend is beneficial for bitcoin's long-term viability as a serious investment asset.
Source: CoinDesk