Oct 21, 2022
VOT Research Desk
Market Insights, Considerations & Analytics
The crypto market has experienced decreased volatility due to low trading volumes and macroeconomic uncertainties, but this might not necessarily be a negative idea.
Main Points
Some pundits are speculating that the bottom may have been reached after a month of trading in tight ranges.
However, just observing current price movement does not provide the full picture.
A more complete picture can be obtained by comparing the relative trade volumes between the 2018 downturn and the present.
A sluggish cryptocurrency market may indicate that a floor has been reached for prices.
Bitcoin Volatility Decreases
The cryptocurrency market seems to be stagnating after months of declining volatility.
The values of numerous significant crypto assets have been stuck in an ever-shrinking range for the past month. Since Sept. 15, Bitcoin’s price has varied within a narrow $2,350 range, which has been getting smaller each time.
The second-largest cryptocurrency, Ethereum, has seen a comparable decline in volatility, fluctuating over the span of a month between $1,400 and $1,200.
The Crypto Volatility Index (CVI) shows that price movements have been at their lowest level since May 7, just before the UST stablecoin on the Terra blockchain lost its dollar peg and entered a death spiral, shocking the market as a whole.The CVI has a reading of 65.99 at the moment, which is not too far from the metric’s all-time low of 50.41, which was set on March 31, 2019.
BTC/USD 2018 Bear Market Chart
Bitcoin’s volatility has decreased in comparison to that of some traditional equity indices as a result of the effect’s magnitude. Bitcoin, for instance, has traded within a range of 9.4% over the past month, as opposed to the NASDAQ’s 10.35% range. Additionally, the magnitude of the drop in volatility experienced by the top crypto asset is brought to light by the fact that equity volatility, as measured by the S&P Volatility Index, recently reached a new all-time high in comparison to Bitmex’s Bitcoin Historical Volatility Index.
The decline in crypto volatility can be attributed to a number of factors. The lack of trading volume in the cryptocurrency markets is the primary factor. The total USD trading volume on major Bitcoin exchanges has fallen to a 30-day average low of $143.5 million, the lowest level since November 2020, according to Blockchain.com data. The price of Bitcoin typically moves more slowly when there is less buying and selling.
However, Bitcoin’s relative price stability is probably also influenced by larger macroeconomic
factors. Traditional equities have continued to be weighed down by uncertainty in global markets.Many market participants are concerned about the potential long-term damage that the Federal Reserve’s monetary tightening regime, which is intended to reduce inflation, could cause the financial system. In recent weeks, yields on U.S. Treasury bonds have skyrocketed, indicating a lack of faith in the government’s ability to pay its debts.
Bitcoin and other cryptocurrencies may have avoided some issues that affect other financialized assets like stocks and bonds because they are not directly connected to the traditional financial system.In addition, those who are still holding crypto likely have no plans to sell anytime soon because the crypto market collapsed in June and forced many large holders to leave.
The lack of sellers can be explained by these factors, but they may also have an effect on potential buyers. Those looking to buy back in will be patiently waiting for a sign that the worst has passed because of the gloomy macroeconomic outlook.
Is Bitcoin at its lowest point?
Many people have wondered if Bitcoin has found a floor at its current price due to the lack of volatility in recent months.
Comparing the current market condition to that of the crypto winter of 2018 is one method for determining whether Bitcoin has reached its bottom.The price of Bitcoin dropped dramatically in the first half of 2018—from a high of $17,176 on Jan. 5 to a low of $5,768 on June 24—and continued to do so.
The price of Bitcoin fluctuated sideways for the next four and a half months, attempting to rise above its June low but failing to do so. However, the top cryptocurrency fell to its cycle low of $3,161 when the low was eventually challenged and broken in the middle of November.
Surprisingly, a situation of a similar nature is currently taking place in 2022.On June 18, Bitcoin reached a local low of $17,636, but despite numerous attempts, it has not been able to break below that level. Other than that, a direct comparison of prices during the 2018 and current bear markets would suggest that, just like in 2018, another final leg down has not yet occurred.
However, price action comparison alone does not tell the whole story. A more complete picture can be obtained by looking at the relative volumes of trading between the drawdown in 2018 and the present day. Bitcoin trading volumes on major exchanges are already significantly lower than they were at the same time in 2018.The collapse of the Terra ecosystem and the bankruptcy of Three Arrows Capital in June may have sped up capitulation and helped the market reach its bottom earlier than in 2018.
Several technical indicators that were absent during the 2018 bear market have also shown signs, as I mentioned in a previous article assessing whether the market had reached its bottom. The Puell Multiple, the Pi Cycle Bottom, and Net Unrealized Profit/Loss (NUPL) have all already reached once-in-a-cycle levels that have traditionally marked the bottom.
Notably, the market has not broken above its June low, indicating that these metrics have been accurate thus far. Investors may be more certain that the market has reached its bottom the longer it remains above its June low. This has the potential to entice buyers and lead to a partial market recovery similar to that of 2019.
However, Bitcoin must maintain its strength throughout November for this scenario to be viable. Bears still appear to be in control due to soaring inflation and the poor global macroeconomic outlook, despite the fact that bulls will argue that there is a possibility of a rally prior to the midterm elections in the United States
Since our last examination of the possibility of a market bottom in July, not much has changed. However, based on the current lack of volatility, I anticipate that we will determine sooner rather than later whether there will be a final leg down to the crypto winter.
