After the quotation at the end of 2017, the queen of cryptocurrencies had reached its all-time high of $19.188 on December 16, 2017. With strongly fluctuating trends, the price then touched what would have been the maximum level of the entire 2018 on January 7: $17.072. From then on the pains started. The average monthly price of Bitcoin dropped from $12.987 in January to $3.653 in December for a 71,8% overall loss. However, if a particularly unfortunate individual had bought Bitcoin on January 7 and sold them on December 16 – the day when the price hit an entire year low of $3.178 – he would have lost 81,4% of the value invested.
As usual, predicting the future price of a financial asset is a gamble. Years ago, not surprisingly, Burton G. Malkiel described the trend in stock prices in the title of a book "A random walk down Wall Street", comparing it to the path of a drunk. However, something can be tried to diagnose based on past trends, especially if one focuses not only on the movements of the price level but also on the volatility of the price itself. In this sense, some observations seem interesting.
Let's first look at the trend in the average monthly price. As already mentioned, the maximum value was in January ($12.987) and the minimum in December 2018 ($3.653). However, the fall in price during the year has not been linear. A first significant drop was recorded between January and February (-27,6%), followed by an adjustment between February and March (-3,2%) and a new drop (-12,7%) between March and April . However, a recovery was observed between April and May (+6,7%). And, if the strongly negative trend resumes between May and June (-19,8%), between June and July there is a small recovery (+4,5%). Then, for three months, the price of Bitcoin shows relatively small variations, although always downwards: -5,4% between July and August; -3,0% between August and September; -0,6% between September and October. Instead, the tragedy has resumed since November. Between October and November the price dropped by 16,2% and the year ended with a relatively wider collapse: -32,7% between November and December.
However, we have mentioned that we must look not only at the price trend but also at its volatility, which we calculate as the standard deviation of the daily closings in the reference month. In fact, the higher the volatility, the more the market expresses uncertainty about the price and, conversely, the lower the volatility, the less the market is uncertain about the price. Therefore, volatility also seems to give us some relevant indications for Bitcoin as well. From January to October 2018, volatility had reduced almost uniquely and drastically from 15,4% in January to 2,2% in October. The only exception was the small rise, from 9,1 to 10,3%, observed between June and July. Well, between October and November 2018 the volatility of the Bitcoin price shot up from 2,2 to 19,1% (the maximum monthly level of the entire year) and, albeit decreasing visibly, in December it settled at 8,2 %, a value well above that of the August-October quarter (5,0%).
In conclusion, the fact that the sharp falls in the price of Bitcoin in November and December were accompanied by an increase in price volatility suggests that uncertainty about the value of this asset has also increased. That is to say, there are likely to be significant new adjustments soon. If one wanted to extrapolate the trend, those adjustments would still be expected downwards. But it is not said ... just as it is not possible to predict which way the next step will go for those who have drunk too much.
