Bitcoin Volatility Trends: A Deep Dive into Market Dynamics and Risk

This article, by S&P Global Ratings and S&P Global Market Intelligence, is a thought leadership report that neither addresses views about ratings on individual entities nor is a rating action. S&P Global Ratings and S&P Global Market Intelligence are separate and independent divisions of S&P Global.

Bitcoin has evolved from a niche asset to one with meaningful linkages to traditional financial markets, reshaping the bitcoin risk-reward analysis for institutional and retail investors alike. As of Feb. 20, bitcoin accounted for more than half of the total cryptocurrency market's nearly $2.33 trillion capitalization. About 95% of bitcoin's total supply, which was expected to be 21 million coins by 2140, was already in circulation. One of the most direct ways bitcoin enters mainstream markets is through institutional adoption. Since the launch of bitcoin futures in 2017, spot bitcoin ETFs and corporate treasury allocations have further tied bitcoin to traditional capital markets, influencing bitcoin volatility and its impact on the broader markets.

This paper provides a bitcoin risk-reward analysis of exposure to bitcoin via spot and tokenized bitcoin, bitcoin futures, bitcoin ETFs and Digital Asset Treasury companies (DATs). As events like the Oct. 10, 2025, flash crash in bitcoin prices demonstrate, bitcoin's market dynamics can contribute to moments of high volatility, but longer-term analysis against equities and other assets demonstrates a trend towards less bitcoin volatility overall.

Analyzing the bitcoin cryptocurrency's drawdowns and rallies is essential for understanding bitcoin's risk-reward profile, investor behavior, and broader market cycles. This analysis used Kaiko data, which provided hourly granularity for bitcoin prices, aggregated over 137 exchanges.

To examine drawdowns and rallies, we fitted trend lines starting from Jan. 1, 2017, in Figure 1. We included selected key events that contributed to the major moves in bitcoin prices (noting that risk-on/off shifts in broader asset markets also played a role in these movements). Among the more notable movements, the data reveals a drawdown of 76.4% from Nov. 9, 2021, to Nov. 22, 2022, a period that includes the collapse of Terra Luna's stablecoin and the FTX exchange. Since Oct. 6, 2025, bitcoin's price has seen a decline of almost half, together with other cryptocurrencies' prices, amid an increase in trade tensions and geopolitical risks or conflicts. The data also shows a return of 466.08% in 2018, when the bitcoin futures market started, and 185.37% in early 2024, when the SEC approved bitcoin ETFs. In the Appendix, Figure 25 shows all bull and bear periods since 2017. This included two market halving events that decreased the amount of bitcoin mined per block. In the past, such events, which are a regular feature of bitcoin markets, fueled the public perception that bitcoin could potentially become a hedge against inflation.

The early narrative surrounding bitcoin often focused on its independence from traditional financial systems and potential as a hedge against inflation. However, as bitcoin gains mainstream recognition and adoption, it is becoming increasingly clear that the cryptocurrency's price is more intertwined with global macro markets. Our analysis shows that the bitcoin cryptocurrency serves as a hedge against long-term currency debasement, not short-term inflation.

A review of the relationship between bitcoin prices and the money supply (M2) shows a consistent, positive relationship over time. As M2 expands, investors may seek alternative assets to preserve purchasing power in response to monetary easing policies, driving demand for bitcoin as a perceived inflation hedge and store of value. While this correlation is not consistently linear and can be influenced by numerous other factors, M2 growth has frequently coincided with notable increases in bitcoin's price.

Although bitcoin's design (with its fixed supply, predictable issuance, portability, and permissionless nature) effectively addresses the issues of long-term currency debasement, it does not serve as a hedge against short-term inflation.

Empirical analysis has failed to demonstrate a consistent correlation between bitcoin returns and either the two-year breakeven inflation expectation or the two-year risk-neutral Treasury yield. Both have shown periods of positive and negative correlation with the bitcoin cryptocurrency's price movements. Breakeven inflation reflects market expectations for future inflation, and the two-year risk-neutral Treasury yield represents the market's expectation of future short-term real rates. Bitcoin prices remain negatively related to the Cboe Volatility Index (VIX) and Nominal Broad US Dollar Index, as shown in an earlier S&P Global report, Are crypto markets correlated with macroeconomic factors?

One of the most notable events in the history of bitcoin was the Oct. 10, 2025, flash crash, when a sudden liquidity crunch combined with elevated leverage in perpetual futures set off massive liquidations that rippled across spot and derivatives markets. Tariff news injected sudden uncertainty and prompted risk-off positioning across markets. The crypto market structure's trading mechanics drove the flash crash: thin liquidity, high leverage in bitcoin perpetuals, and cascading liquidations. Bitcoin prices fell 8% in minutes between 21:00 UTC and 21:20 UTC (figure 8).

The flash crash set off one of the largest-scale crypto liquidations observed to date. On the Binance, Bybit and OKX exchanges between 21:00 UTC and 22:00 UTC, more than $1.2 billion in leveraged bitcoin-tether perpetual futures were liquidated (this is the same time interval when bitcoin dropped). More than $19 billion in leveraged crypto positions were liquidated over a 24-hour to 48-hour period.

Perpetual futures give leveraged access to bitcoin price exposure without owning the actual bitcoin. They are popular in crypto markets for retail investors, as they do not have an expiry date and they support high leverage (20x or more, determined by the user on entry). They have a periodic floating funding rate designed to keep the contract's price aligned with the bitcoin price. Bitcoin futures on the Chicago Mercantile Exchange (CME) are fixed-expiry contracts with a defined size and regulated clearing/margin requirements, making them more popular among institutional investors, bigger in size and generally held for longer.

Bitcoin's derivative market structure amplifies price sensitivity to macro liquidity shocks. Leverage in bitcoin markets is less constrained and more automated, making sell-offs faster and more mechanically amplified than in traditional markets.

Figure 11 shows that in December 2025, the Binance daily traded perpetual futures notional volume was, on average, almost 9x higher than for bitcoin spot trading and 3x higher than that of CME futures.

Binance is dominated by retail, higher leveraged trading, shorter duration and increased activity in opening and closing positions, while CME has higher open interest (OI) as shown in figure 12, as institutions hold larger, longer-duration futures positions.

In December 2025, gold futures reached, on average, a notional volume more than 15x higher than that of bitcoin CME futures and 6x higher than bitcoin-tether perpetuals traded on Binance, but gold was similar in magnitude to the overall bitcoin futures market.

During the Oct. 10, 2025, flash crash, the bitcoin futures notional traded volume more than doubled on Binance, while the open interest contracted by 25% due to liquidations. CME bitcoin futures saw a smaller uptick of 34% in traded volume and a 4.3% open interest drop. In comparison, stock markets did not exhibit such large swings, with the Nasdaq-100 contracting by 3.5%. Notably, the crash happened on a Friday after traditional US market hours. During that weekend, traditional finance markets were closed, while crypto markets continued to absorb the sell-off panic.

Direct exposure to bitcoin involves owning the underlying asset itself, typically through self-custody wallets or trusted custodians. Investors who hold bitcoin directly participate fully in its price movements, bearing both the potential for appreciation and the risks of volatility, security, and custody management. In contrast, indirect exposure allows investors to gain economic exposure to bitcoin's price without owning the asset outright. This can occur through financial positions such as exchange-traded funds (ETFs), derivatives or lending protocols, and spot bitcoin on centralized exchanges (CEX). These vehicles often simplify access and regulatory compliance but introduce additional layers of counterparty, tracking, or liquidity risk. Our analysis reviews the varying levels of risk associated with several types of bitcoin exposure.

The bitcoin cryptocurrency resides only on the bitcoin blockchain, and it is the only asset on that network. Therefore, direct ownership requires custody through private keys in a bitcoin-compatible wallet. Because the bitcoin blockchain lacks an application layer, one cannot directly buy or sell bitcoin cryptocurrency on the bitcoin network itself, which is primarily a settlement layer, or a system for transferring bitcoin from one wallet to another. A trade requires two assets to be exchanged, and the bitcoin blockchain's architecture does not support the smart contracts needed to manage that exchange logic. Therefore, bitcoin cryptocurrency sales must occur on external platforms. Sales happen either on centralized exchanges, where a book value of bitcoin is marked to an account, or on decentralized exchanges built on networks like ethereum or solana that offer smart contract functionality. On decentralized exchanges, a tokenized version of bitcoin is used.

When a user purchases bitcoin on a centralized exchange, they are increasing their account balance represented as a liability for the exchange. A well-managed centralized exchange should maintain sufficient reserves of bitcoin in its own wallet to cover these liabilities and fulfill outstanding orders. The FTX collapse in 2022 highlighted the risks of this model, as the exchange lacked adequate reserves to meet those positions.

Centralized exchanges introduce counterparty and operational risks related to custody, trade execution, and reserve management. Similar risks exist when trading wrapped bitcoin (wBTC) on decentralized exchanges. In both centralized and decentralized scenarios, the asset traded represents a claim on the bitcoin cryptocurrency, rather than direct ownership of the underlying asset. Holding wBTC on a centralized exchange compounds the counterparty risk.

Transfers of bitcoin cryptocurrency between addresses may represent the settlement phase of a trade executed elsewhere, such as an over-the-counter (OTC) agreement, a peer-to-peer (P2P) transaction, or a customer withdrawing funds from a centralized exchange. While the bitcoin network does not require a counterparty for its settlement function, any exchange of value requires trust in a counterparty, whether it is the centralized exchange holding assets or the entity managing wBTC. This reliance on counterparty trust means bitcoin trading retains many of the risks associated with traditional assets. The trustless nature of the bitcoin network is therefore limited to settlement. More than 99% of bitcoin wallets hold relatively small amounts of the cryptocurrency (less than $1 million), as shown in Figure 15. A small number of entities hold the bulk of the remaining bitcoin, and centralized exchange reserve wallets typically fall within this concentrated group.

Tokenized bitcoin refers to representations of bitcoin cryptocurrency as tokens on other blockchains, like ethereum. This allows bitcoin to participate in new applications and functionalities beyond the bitcoin network, particularly within decentralized finance ecosystems.  A prominent example that is widely used on ethereum is wrapped bitcoin (wBTC). These tokens represent a claim on underlying bitcoin (BTC) held in custody, and they aim to replicate bitcoin's functionality within other blockchain environments by mirroring its price 1:1 and being fully backed by real bitcoin.

The increased interconnectedness introduced by tokenized bitcoin also means that vulnerabilities in one network can increasingly impact the other. Tokenized bitcoin introduces custodial risk (related to the custodian holding the underlying bitcoin), platform risk (associated with the blockchain the token resides on), and smart contract risk.

Wrapped bitcoin exhibits greater volatility than bitcoin and has experienced depegging events, reflected in its lower correlation with bitcoin returns. Figure 17 shows price deviation events greater than +3% and -3% (upward or downward) for wBTC based on minute-by-minute data. Each dot represents the highest price deviation during a depegging event, defined as the first time the price exceeds the plus or minus 3% band and the time it returns inside the plus or minus 3% range. Our analysis notes clusters of depegging events in June 2022 (after the Terra Luna collapse), in November 2022 (during the FTX collapse) and December 2024 (after wBTC was delisted by Coinbase).

The 3-month rolling correlation between daily returns is not always close to 100%, even though wBTC is pegged to BTC. The correlation declines in the second half of 2024 and in the first half of 2025. The timing of the decline lines up with the entry of more competitors in the market and with the wBTC delisting by Coinbase in December 2024.

The introduction of spot bitcoin exchange-traded funds (ETFs) on US exchanges in January 2024 significantly influenced bitcoin market dynamics. The funds hold actual bitcoin and aim to track the spot price of bitcoin. The development paved the way for previously hesitant investors to enter the bitcoin market in a compliant and regulated manner. Soon after launch, bitcoin spot ETFs drew significant investments. The situation shifted in April and early May 2025, when outflows reached more than $1.2 billion. As of January 2026, the 12 ETFs tracked by the Bitbo platform held about 1.3 million bitcoin, or 6.1% of the 21 million bitcoin in total supply.

US spot bitcoin ETFs collectively managed about $169.5 billion in assets as of October 2025, a figure that dropped to $117.5 billion in January 2026 due to a combination of net outflows and a decline in the price of bitcoin (www.bitbo.io). An analysis of the performance of the largest ETF, the iShares Bitcoin Trust (IBIT) from BlackRock, shows an almost perfect correlation between prices for bitcoin and IBIT.

Bitcoin ETFs can trade at a premium when ETF demand surges faster than shares are created, bitcoin prices rise outside trading hours, and equity-market liquidity is tight. Discounts happen when there is a market sell-off, bitcoin prices fall outside trading hours, and risk-off sentiment prevails. An analysis of ETF inflows and outflows, which measure money entering or leaving a fund, shows a positive relationship between the IBIT ETF cumulative net flows and bitcoin price.

Digital Asset Treasury companies (DATs) raise capital from investors in various forms (e.g., equity, convertible debt) and in most cases use the resulting proceeds to buy a single cryptocurrency and store it on their balance sheets. This approach, pioneered by companies like Strategy, aims to capitalize on crypto's growth potential.

DATs give investors leveraged crypto exposure. Many firms with conventional operations have also started to accumulate bitcoin cryptocurrency to diversify their cash balances, without making it their primary business focus. We do not view these types of companies as DATs. Public companies collectively hold just over one million bitcoin (5% of the total supply) in more than one hundred companies, according to Yahoo Finance.

Strategy is the largest DAT to date. As of January 2026, the company held 709,715 bitcoin, or about 3.4% of the 21 million bitcoin total supply. Strategy's offering includes convertible senior notes, convertible preferred stock, senior secured notes and at-the-market equity offerings, and perpetual debt.

When the company's stock trades at a premium to its net asset value (NAV), any subsequent equity issued at prevailing market price (i.e., preserving the premium) is accretive. That is, existing shareholders automatically get leverage and a higher exposure to the underlying asset on the balance sheet even when bitcoin and stock prices do not change. Investors can build wealth in two ways: first, if bitcoin prices rise; and second, if leverage increases through capital raised while a premium persists.

mNAV evaluates if the market assigns a premium or a discount for the company's stock relative to its underlying crypto assets and is calculated as the ratio between the enterprise value and the market value of its bitcoin holdings. Since January 2025, the mNAV for Strategy has declined to near 1, weakening its ability to issue accretive equity for bitcoin holdings.

Companies holding bitcoin are not necessarily crypto or digital asset treasury companies, but those that have elected to hold bitcoin (or other cryptocurrency) on their balance sheets as part of their treasury or reserve strategies. For example, some companies with cash/liquidity reserves decide to diversify by acquiring bitcoin. The core business is still the original business (software, manufacturing, mining, services). Some mining companies also accumulate bitcoin produced from mining operations and choose to hold the bitcoin earned as opposed to selling it immediately for cash. Bitcoin holdings may be a supplement to their treasury strategy, rather than the primary strategy. Holding bitcoin can diversify corporate reserves, signal innovation, long-term hedge inflation, or capitalize on potential appreciation of digital assets, while adding an extra layer of risk (volatility, regulatory, custodial) that may diverge from the core business risk. Mining companies accumulate bitcoin from mining rewards, whereas treasury companies and other public companies buy bitcoin on the open markets. Our analysis reviews bitcoin and the stock price movement for three companies: Strategy (MSTR), MARA Holdings (MARA) and Tesla (TSLA). For Strategy, the movement of its stock price reflects a leveraged exposure to bitcoin. MARA Holdings (formerly known as Marathon Digital Holdings) focuses primarily on bitcoin mining using its owned and hosted mining equipment. MARA's operational costs are significantly influenced by bitcoin's price and the cost of electricity. Our analysis also included Tesla, which has significant bitcoin holdings, but its primary business is not crypto-related. Tesla's position in bitcoin is dwarfed by the company's $1.5 trillion market capitalization.

Figure 24 shows that rolling volatility for Strategy and MARA Holdings surpasses that of bitcoin, driven by leverage and compounded by company-specific risks, shifts in market sentiment, and technical dynamics affecting publicly listed stocks.

While bitcoin demonstrates evolving characteristics — decreasing volatility, increasing integration with traditional finance and a potential role as a hedge against currency debasement — it remains a complex asset class with risk amplified by leveraged markets. The emergence of diverse financial products linked to bitcoin, while expanding access and innovation, introduces new risks that require a thorough understanding of market dynamics.

Taken together, these dynamics highlight how evolving market structure, institutional adoption, and macroeconomic conditions continue to reshape bitcoin's growing interconnectedness to traditional markets.