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Lack of volatility

One of the concerning market dynamics right now that we want to focus on is the lack of volatility. The high period of spot volume activity and relatively low derivatives activity really didn’t move prices and bear markets are notorious for testing the patience of market participants when it comes to duration. We’ve had some volatility with the latest Consumer Price Index (CPI) inflation print, but historic bitcoin volatility is still at all-time highs.

Now, everyone wants to see this bitcoin price range break one way or another; a larger range buildup usually leads to a larger breakout move. It’s really something to see bitcoin’s historic volatility below the UK gilt market, but now it’s even below the average for equity and bond ETFs. That’s when you know the market is completely flipped. Either this speaks to a lack of interest in bitcoin right now with a much larger brewing movement, or the whole asset profile of bitcoin has suddenly changed. We lean toward the former and history has shown that this all-time high in volatility doesn’t last long and has led to some pretty significant price breakouts and breakouts.

Even implied volatility in the market via option pricing is at all-time highs (and falling) across different time frames.

Everyone waits for the next big breakout or blackout before dispatching again.  Compressed historical volatility tells us that it is fast approaching.

Source: Glassnode

In the four significant historical low percentile volatility events, we saw three upside moves and one significant downside move to new lows in 2018. This is a small sample from which to draw directional conclusions, but a big move seems to be coming soon and the 2018 price analogue is one we’ve already discussed – especially given our expectation that the S&P 500 will see lower lows from here before the end of this cycle. To quote a previous article, “What to expect when expecting volatility”:

“While bitcoin’s lack of recent volatility might be a sign that much of the bull market’s leverage and speculative mania has been almost entirely erased, our eyes remain on the oversized legacy markets for signs of fragility and volatility, which could serve as a headwind in the short/medium term.

Everyone waits for the next big breakout or blackout before dispatching again.  Compressed historical volatility tells us that it is fast approaching.

The Bitcoin Volatility Index

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