Is Bitcoin Mispriced? Lessons From Past Volatility Slumps

Since its inception, Bitcoin has (nearly) at all times been the poster baby for volatility. But, the Bitcoin worth is hardly transferring in any route in the meanwhile. However the newest knowledge suggests a shocking twist within the story.

As per a current report by on-chain knowledge supplier Glassnode, “Bitcoin markets are experiencing an extremely quiet patch, with a number of measures of volatility collapsing in direction of all-time lows.” This raises the query: Are we coming into a brand new period of Bitcoin worth stability, or is the market misreading the indicators?

Historic Context For The Volatility Of Bitcoin

To really perceive the present state of the market, it’s important to delve into the historic context. The Glassnode report notes, “It has been 842-days for the reason that bull market peak was set in April 2021.” Throughout this era, Bitcoin’s restoration has been extra sturdy than in earlier cycles, buying and selling at -54% beneath its all-time excessive (ATH), in comparison with a historic common of -64%.

Drawing parallels with previous cycles, the report highlights that each the 2015-16 and 2019-20 cycles underwent a “6-month interval of sideways boredom earlier than the market accelerated above the -54% drawdown degree.” This could possibly be indicative of the same “boredom” section within the present cycle.

Probably the most hanging revelations from the Glassnode report is the acute volatility compression Bitcoin is at present present process. “Bitcoin realized volatility starting from 1-month to 1-year commentary home windows has fallen dramatically in 2023, reaching multi-year lows.” That is harking back to 4 distinct intervals in Bitcoin’s historical past, together with the late stage of the 2015 bear market and the post-March 2020 consolidation following the outbreak of COVID-19.

Following the livid rally in the beginning to 2023, the value efficiency on each a quarterly and month-to-month foundation has moderated. This mirrors Bitcoin’s earlier cycles the place the preliminary surge from the low is powerful, however then transitions into a protracted section of uneven consolidation, a section of re-accumulation.

Moreover, the report states, “The value vary which separates the 7-day excessive and low is simply 3.6%. Simply 4.8% of all buying and selling days have ever skilled a tighter weekly commerce vary.” The 30-day worth vary is much more excessive, constricting worth to only a 9.8%, and with solely 2.8% of all months in BTC’s historical past being tighter. Such ranges of worth compression are uncommon for Bitcoin, suggesting an anomaly or a possible precursor to a big market transfer.

Derivatives Market Insights

The derivatives market, typically seen as a barometer for underlying asset sentiment, can be echoing this quiet spell. “The mixed Futures and Choices commerce quantity for [BTC and ETH] are at, or approaching all-time-lows,” the report notes. That is additional emphasised by the truth that “BTC is at present seeing $19.0B in mixture derivatives commerce quantity, while ETH markets have simply $9.2B/day.”

Curiously, the choices market is exhibiting indicators of a big “volatility crush.” As per Glassnode, “Choices are pricing within the smallest volatility premium in historical past, with IV between 24% and 52%, lower than half of the long-term baseline.” That is additional corroborated by the traditionally low Put/Name Ratio and the 25-delta skew metric, suggesting a web bullish sentiment out there.

The crux of the matter lies in deciphering these indicators. The report aptly questions, “Given the context of Bitcoin’s notorious volatility, is a brand new period of BTC worth stability upon us, or is volatility mispriced?” Traditionally, intervals of low volatility in Bitcoin have typically been adopted by vital worth actions. Whether or not this can be a calm earlier than a storm or a real shift in direction of a extra steady Bitcoin stays to be seen.

However as Tony “The Bull”, the chief chart technician at NewsBTC, has identified yesterday, the technical indicators are additionally pointing to a protracted interval of re-accumulation, that means that the section of low volatility is prone to proceed for a while to return.

At press time, the BTC worth was at $29,277.

Featured picture from iStock, chart from TradingView.com