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Revisiting the volatility of bitcoin with approximate entropy

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  • Nassim Dehouche

Abstract

Two distinct and non-redundant understandings of volatility, as deviation from consistency, exist for a time-series: (1) exhibiting high standard deviation and, closer to the dictionary definition of the term, (2) appearing highly irregular and unpredictable. We find that Bitcoin is a prime example of an asset for which the two concepts of volatility diverge. We show that, historically, Bitcoin combines high Standard Deviation and low Approximate Entropy, relative to Gold and S&P 500. Moreover, subsample analysis for different time-scales (daily, weekly, monthly) shows that lower sampling frequencies drastically reduce the Kurtosis of the distribution of log-returns of Bitcoin. The opposite effect is observed for Gold and S&P 500. These properties suggest that, contrary to the volatility of the two traditional assets, Bitcoin’s high volatility is essentially an intra-day phenomenon that is strongly attenuated for a weekly or monthly time-preference.

Suggested Citation

  • Nassim Dehouche, 2022. "Revisiting the volatility of bitcoin with approximate entropy," Cogent Economics & Finance, Taylor & Francis Journals, vol. 10(1), pages 2013588-201, December.
    • Handle: RePEc:taf:oaefxx:v:10:y:2022:i:1:p:2013588
    DOI: 10.1080/23322039.2021.2013588
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