In the world of Bitcoin, silence is not always worth gold. In recent weeks, Bitcoin price volatility has fallen to historic lows, with BTC price trading mostly between $29,000 and $30,000. Beneath this placid surface, however, are some intriguing market dynamics at play.
“Realised volatility for Bitcoin has fallen to an all-time low. Over a 1 month to 1 year timeframe, this is the quietest we’ve seen the corn since March 2020. Historically, such low volatility corresponds to post-bear market hangovers (re-accumulation phase),” explained Checkmate, head of chain analyst at Glassnode.
The chart shared by Checkmate shows that realized year-over-year volatility resembles the post-bear era for Bitcoin as of March 2020, when volatility reached 47%. Currently, the 1-year volatility is 49.1%, the 3-month volatility is 35.5%, and the 1-month volatility is 22.9%.
Stop before the storm for Bitcoin
However, the low volatility is not the only story. Checkmate also highlighted a new all-time high for Bitcoin’s long-term supply, now at 14.59 million BTC, which accounts for 75% of the circulating supply. This shows that an increasing number of Bitcoin investors are convinced of a future rally, leading to a shortage of supply, while high-risk traders are being washed out of the market due to a lack of volatility.
At the same time, there is a wave of institutional positioning; CME Bitcoin futures volume and outstanding interest hit a 20-month high in July. Despite Bitcoin spot markets recording low volumes, CME futures saw the highest volume since January 2022, with $55.8 billion in July.
The CTFC data reveals a fascinating brawl between two investor groups. Wealth managers have a net long position of $1.2 billion, while hedge funds have a net short position of -$980 million. This deadlock suggests an imminent breakout in Bitcoin’s price, potentially leaving one of these groups with burnt fingers.
On-chain analyst Ali Martinez as long as further insight: “Even as Bitcoin fell from $32,000 to $29,000, the number of new BTC addresses steadily increased! This bullish divergence between price and network growth indicates a stable long-term BTC uptrend. Buy the dip!”
Indeed, the current phase of low volatility is not without precedent or predictive power. Renowned analyst @CryptoCon offers a compelling perspective on this, stating that such periods of sideways price action are not only normal, but potentially bullish.
“Bitcoin sideways price action at this point in the cycle is completely normal! The 2 Week Mass Index enters the golden pocket at the most stagnant cycle points, just before huge bullish moves. Data everywhere points to the same conclusion: low volatility is bullish,” said CryptoCon tweeted.
Chris Burniske, partner at Placeholder VC, also shared his take on current market dynamics. “Currently, tourists are inactive, while residents are rapidly accumulating, holding 74.8% of all supply. That is consistent with an early-stage bull market. Thirty percent of BTC has gone to cold storage since 2020, leaving 2.26 million exchanges. Bitcoin seems reasonably valued relative to the number of active entities on the network.”
Burniske’s simplified price/cycle model predicts that Bitcoin will reach nearly $39,000 in Q4 2023 and $92,000 (base case) in Q4 2025 with entities above 600,000.
In conclusion, Bitcoin’s current phase of low volatility may seem dull at first glance, but the underlying market dynamics suggest a different story. The tug-of-war between asset managers and hedge funds, the steady increase in new BTC addresses, and the rapid accumulation by long-term holders all point to an impending storm.
At the time of writing, the price of Bitcoin stood at $29,076.
Featured image from iStock, chart from TradingView.com