Although the bitcoin price could rise significantly earlier this year, it has been remarkably stable lately. Bitcoin volatility even dropped to an all-time low. On-chain analytics agency Glassnode explains why in a weekly report.
Bitcoin prices are extremely volatile, however the market is currently experiencing extreme volatility compression. While the options markets reflect this, it suggests that Bitcoin is either not particularly volatile anymore…or the volatility could be mispriced.
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– glassnode (@glassnode) August 7, 2023
Bitcoin volatility extremely low
“Bitcoin markets are in an incredibly quiet period, with multiple measures of volatility falling to all-time lows.”
According to Glassnode, bitcoin value has only been in a narrower range 5% of the time. Bitcoin’s realized volatility fell dramatically in 2023, even hitting a multi-year low. The 1-year volatility window is now at levels not seen since December 2016. This is the fourth period of such extreme volatility compression.
According to Glassnode, periods of consolidation and price compression of this magnitude are extremely rare events for Bitcoin. Again, analysts see many similarities to previous cycles where the initial bounce from the bottom is strong but leads to a long stretch of choppy consolidation. This period is often referred to as the “reaccumulation period” by Bitcoin analysts.
The silence is confirmed by data from CryptoQuant. Trading volumes have been reduced to a minimum – there are simply almost no buyers and sellers left. As a result, Bitcoin (BTC) is suddenly less volatile than the Nasdaq, S&P 500 and gold in August.
Is the derivatives market bullish on cryptocurrencies?
Derivatives like options and futures contracts for Bitcoin paint the same picture, although Glassnode is relatively bullish on this. Crypto options market Deribit shows that investors prefer it call options then so-called buy puts. You buy the former when you think the price will go up. As a result, these bearish put options are relatively cheaply priced – nobody wants them.
However, we must add an important caveat here. Experienced investors regularly use options to trade validation. This means that sometimes they have a position in the underlying asset and buy the opposite, in order not to lose money in the opposite case. That means options investors may be holding mostly cash or even bitcoin right now shortwhile buying call options to take advantage of rising prices.