It’s an exciting time for bitcoin investors. Watch. To wait. Don’t take the first step. The fickle cryptocurrencyhas been unusually quiet for the past four weeks, trading between $28,452 and $25,800. Even the end of the US debt ceiling saga did little to fuel risk appetite.
Bitcoin’s volatility index is near 64, well below the 2023 peak of 116.5 reached in January, according to CryptoCompare. Total daily cryptocurrency spot trading volumes — more than $20 billion for most of the year — have languished around $10.6-$12 billion over the past two weeks, data from The Block shows.
The data points to an unwillingness of investors and traders to take positions in spot or derivatives, said Noelle Acheson, an economist who has followed the crypto industry for seven years.
This was echoed by Matthew Weller, global head of research at financial services group StoneX. “Looking at bitcoin’s chart, traders are waiting for a final break from the $27,000 level, which has been constantly pulling prices back,” he said.
The world’s largest cryptocurrency is still the best performing asset of 2023, with gains of about 62%. Still, it is down almost 14% from a peak of $31,035 in April, leaving jittery traders guessing about the next move.
STILL WATERS RUN DEEP?
“The lack of something interesting is also interesting,” says Luuk Strijers, chief commercial officer at the derivatives exchange derivative.
Bitcoin’s 7-day and 30-day implied volatility — options traders’ expectation of future price turbulence — has dropped to January lows of less than 40%, after peaking at 76% and 67% in March, according to The Block.
“If implied volatility falls to a low, it can’t go much lower,” Strijers added. “Trading volatility, buying options with no price movement, that’s what people in this market could do.”
Market positioning indicates that the maximum pain level for the June 2023 options expiration for bitcoin is around $24,000, which Bitfinex analysts believe could act as a support or resistance level.
“Traders should be prepared for potential market turbulence and near-term price fluctuations in the second half of the month,” they said.
In the longer term, in 2024, they expect the halving of bitcoin – a technical adjustment that lowers the rate at which new coins are created – and the US election to ramp up volatility.
THE BULLS HIDE
Funding rates, which measure the cost of holding bitcoin through futures, have fallen, indicating that investors are less willing to pay to be long. It last traded at 0.0098%, well below March’s 0.0302%.
“A bull market is easy when everything goes up,” he said Thomas Cralow, a crypto hedge fund manager at Kralow Capital. “But it’s markets like this where people lose money — because of false beliefs that we’re finally turning the corner, which is incredibly hard to predict.”
He added: “Right now, with the drop in volatility, we have a few trades that we can hedge in case bitcoin drops to $20,000.”
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