Is crypto a viable alternative to volatile fiat currencies?

Is crypto a viable alternative to volatile fiat currencies?

It has been suggested that cryptocurrencies are a viable alternative to fiat currencies in countries with particularly high levels of volatility, but how do the volatility levels compare? We ran our own analysis to find out.

Volatility among currencies: Long-term averages
The most volatile currencies and crypto over a four-year period

Looking at the average volatility per day – that is, the percentage amount a cryptocurrency moved in value over a day – over a four-year period, major cryptocurrencies are consistently above fiat currencies. Between August 2018 and July 2022, Ether averages the highest, at 6.7%, while both currency codes for bitcoin (BTC and the more recently introduced XBT) follow close behind.

The only fiat currency with a similar level of volatility is the Seychellois Rupee – the currency of the Seychelles. Here, the volatility is explained by the fact that it is the smallest country in the world by population to have its own independent monetary policy, rather than being tied to another country’s currency.

By this view, it would seem that crypto was not an effective alternative to volatile currencies, sitting notably above larger currencies that have experienced volatility. However, if we look into the timescale in more detail, a different picture emerges.

Volatility among currencies: Crypto vs fiat over time
The level of daily volatility among key currencies and cryptocurrencies

Looking on a day-by-day basis, we see a different story. While crypto is consistently more volatile than most fiat currencies, some volatile currencies vary enough that on a bad day they can be worse than crypto. 

In these situations, there may be short periods where crypto does become an appealing option. Sri Lanka, which has experienced notable currency issues, has had periods where the levels of volatility are around the same as crypto, while in Russia the country saw a period following its invasion of Ukraine where the Ruble was significantly more volatile than cryptocurrencies.

It should also be noted that this will also not highlight sustained high prices, such as those produced by parallel exchange rates – here prices may be high enough to warrant the use of crypto, but they may not be volatile.

Fiat may be more stable than crypto in the long run, but there are times when crypto is the less volatile option. However, there are the significant costs of getting in and out of cryptocurrencies (on and off-ramping), which we’ll save for another time.

How do cryptocurrency costs compare to fiat alternatives?

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