The lack of volatility in bitcoin (BTC) has been the main talking point among traders for the past two weeks, with the current swings in the $18,000-$25,000 range going on for 126 days. Most traders agree that a significant price change is coming, but what exactly do they base this thesis on?
We look at three metrics that predict a spike in bitcoin volatility.
Reduced volatility and vendor shortages
According to Glassnode research, the “bitcoin market is primed for volatility,” with on-chain and off-chain data sending multiple signals. The researchers note that one-week realized volatility fell to 28%, a level that usually follows a sharp rise in price.
Examining bitcoin’s aSOPR, a metric that “measures average realized profit/loss for BTC spent on a given day” shows:
“The price and the aSOPR metric are currently very different. As prices trade sideways or decline, the amount of locked-in losses decreases, indicating the exhaustion of sellers in the current price range. »
In addition to the divergence between price and adjusted SOPR, short-term holders of bitcoin are approaching their break-even point, and the SOPR of short-term holders is approaching 1.0.
This is significant because a reading of 1.0 during a bear market has historically worked as a resistance level, and traders tend to exit positions near the break-even point.
If aSPOR breaks above 1.0 and turns this level into support, it could be an early sign of an initial trend change in the market.
There are also trading indicators at pivot points
Multiple technical analysis indicators are also signaling that a strong directional move is on the way, a point noted by independent market analyst Big Smokey.
According to’analysis :
Bitcoin price range, SuperGuppy and Bollinger Bands are getting really tight. ETH looks the same. You know what that means. pic.twitter.com/e7s6ScG7jz
— Big Smokey (@big_smokey1) October 18, 2022
Bitcoin price range, SuperGuppy and Bollinger Bands are getting very tight. ETH looks the same. You know what that means. pic.twitter.com/e7s6ScG7jz- Big Smokey (@big_smokey1) October 18, 2022
Cryptocurrency research firm Delphi Digital recently issued a similar view, citing the “squeeze” within the Guppy Moving Average as a sign of “shorter-term momentum and the potential for a rally as this cohort seeks to flip the longer-term moving averages “.
On October 10th, Delphi Digital researchers referenced the Bollinger Band Width (BBWP) measure, and suggested that “a big move could be brewing for BTC”. The researchers explained that “historically, BBWP readings above 90 or below 5 have marked major inflection points.”
Also Read: Bitcoin Shows Pre-Breakup Scenario 2020!
The state of bitcoin derivatives
Bitcoin derivatives markets also put out many signals. Open interest in bitcoin futures was at a record high of 633,000 contracts, and trading volumes fell to a low of $24 billion per day. Glassnode notes that these levels were “last seen in December 2020, before the bull cycle broke through $20,000 AGAIN in the 2017 cycle.”
As you would expect during a bear cycle, liquidity, or the amount of money moving in and out of the market, has decreased; which believes that a peak in volatility can lead to a large variation in prices.
Since derivative metrics such as futures open interest, long close, and BTC margin futures have hit multi-year records, it is important to note that none of these indicators provide absolute certainty about market direction. It is difficult to determine whether most market participants are long or short, and most analysts suggest that the increase in open interest reflects ongoing hedging strategies.
What is certain is that on-chain data, derivative data, and fundamental technical analysis indicators are all pointing to an explosive move ahead in bitcoin price.
Bitcoin’s current long period of low volatility is somewhat unusual, but reviewing the data presented by glassnode and Delphi Digital could provide valuable insight into what to expect when certain chain metrics reach specific thresholds, which which would give investors some ideas on how to position. themselves.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect those of Cointelegraph.com. All investment and business transactions involve risk. You should do your own research before making a decision.