Bitcoin Volatility Drops 81% as Traders Flock to Ethereum

Bitcoin, once known for its wild price swings, is now exhibiting signs of maturity as its volatility has sharply declined. This shift has prompted risk-seeking traders to explore other opportunities. The influx of "buy and hold" investors from traditional financial markets has transformed Bitcoin into a more stable asset, similar to blue-chip stocks. Its annualized volatility has decreased from levels near 200% a decade ago to 38%, a level once considered unimaginably low. Currently, Bitcoin's volatility is comparable to that of traditional stocks like Starbucks and Goldman Sachs.

In contrast, investors who thrive on price fluctuations are turning their attention to Ethereum, the second-largest virtual currency. Following a wave of corporate buying, Ethereum ETFs have seen trading volumes match or even exceed those of Bitcoin ETFs on multiple trading days this month. BlackRock's Ethereum ETF, launched in April this year, already has an open interest in options of 5.5 billion dollars, accounting for about 40% of the open interest in Ethereum options on the crypto derivatives platform Deribit.

The current market landscape reflects a common trend of capital rotation: Bitcoin is increasingly seen as a long-term holding asset, while Ethereum, which is still in the early stages of institutional acceptance, has become the preferred target for traders seeking greater volatility. "This is not a bull market for all," said the chief investment officer of a digital asset management company. He noted that most recent trading activity has been concentrated in Bitcoin and Ethereum.

However, the motivations behind trading the two differ. "For many traders, the trading opportunities in Bitcoin have already been realized," said the founder of a research company. "Ethereum still feels 'underowned,' with higher volatility and more sensitive market signals."

On Friday, as global financial market traders prepared for the highly anticipated speech by Federal Reserve Chairman Jerome Powell at the Jackson Hole Economic Symposium, the prices of both Bitcoin and Ethereum saw little movement. Bitcoin fell to 111,666 dollars during Friday's trading session, its lowest level since July 10. Since August, investors have injected 2.5 billion dollars into Ethereum ETFs, while Bitcoin-related products have seen a net outflow of 1.3 billion dollars.

Some traders are now positioning for a market reversal. The managing partner of a venture capital firm expects Ethereum's price to consolidate in the range of 3,900 to 4,400 dollars but warns that if leveraged positions start to unwind, Ethereum's price could drop to the lower end of the 3,000 dollar range. On Friday, Ethereum was trading at 4,209 dollars.

"Ethereum is entering a risk-off mood," said the head of Europe for a cryptocurrency management company. "While a short squeeze is not out of the question, many funds are currently preparing for a pullback."

In past market cycles, the rise of Bitcoin and Ethereum often lifted the entire cryptocurrency market. However, this time, other digital tokens have shown relatively subdued market performance. For now, Bitcoin serves as the market's "stable anchor," while Ethereum has become the hub for volatility. This market bifurcation highlights the current transition phase of the cryptocurrency market: Bitcoin's volatility is decreasing as it grows into a mainstream asset, while Ethereum has become the speculative playground for risk-seeking traders. Whether this bifurcation will ultimately spark a broader altcoin resurgence or continue to marginalize smaller tokens remains to be seen.