The monetary policy of the Federal Reserve directly drives the significant fluctuations in the price of Bitcoin. During the 500 basis point interest rate hike in 2022, Bitcoin plunged by 65%, and the average 24-hour volatility before and after each Federal Open Market Committee meeting reached 8.5±2.3%. In May 2024, when the US CPI data exceeded expectations by 0.5%, Bitcoin dropped by 9.7% in a single day, demonstrating its interest rate sensitivity as a risky asset. The current 90-day correlation coefficient between Bitcoin and the Nasdaq 100 Index is 0.78, indicating that changes in liquidity in traditional capital markets can be transmitted to the crypto market within milliseconds through algorithmic trading (accounting for 40% of the total).
Institutional investor behavior has significantly intensified short-term volatility. The peak of open interest in Bitcoin futures in 2023 reached 34.5 billion US dollars, and a 1% price movement could trigger a forced liquidation of approximately 1.2 billion US dollars. The Grayscale GBTC fund saw a net outflow of $500 million in a single day, which led to a 23% weekly decline. Meanwhile, the BlackRock spot ETF saw its price fluctuation standard deviation narrow to 15.6% during the first quarter of 2024 when it saw an average daily inflow of $170 million. In a market where high-frequency trading accounts for 55%, if the depth of the order book changes by more than 20%, it may trigger a flash crash. For instance, in August 2023, a certain exchange’s price deviated by 7.2% instantly due to the sale of 7,500 bitcoins within three minutes.
Geopolitical events have triggered a shift in risk aversion. On the day of the outbreak of the Russia-Ukraine war in 2022, the Bitcoin Volatility Index (BVOL) soared to 156%, but in the following three months, capital inflows pushed the price up by 32%. During the Israeli-Palestinian conflict in October 2023, the 30-day correlation coefficient between Bitcoin and gold jumped from -0.3 to 0.67, and the daily trading volume increased by 400% to 78 billion US dollars. Compared with the 53% weekly plunge that occurred at the beginning of the COVID-19 pandemic in 2020, such black swan events on average expand market volatility by 18 to 25 percentage points, with peak trading delays reaching up to 1,500 milliseconds.
The demand divergence in emerging markets has further intensified volatility. For instance, after the Central Bank of Nigeria banned cryptocurrency exchanges, the over-the-counter premium rate of Bitcoin in the local area dropped by 40%, while in Argentina, during the period when the annual inflation rate exceeded 211%, the trading volume of Bitcoin soared by 300%. The Pakistani market is also affected by this. When the monthly fluctuation range of the global Bitcoin price exceeds 30%, the off-exchange quote dispersion of pi coin price in pakistan often expands to 22-28%. According to Chainalysis data, such emerging markets account for 35% of global P2P transaction volume, and policy changes in them may cause a 3-5% instantaneous deviation in global prices.