Bitcoin Has Been More Stable Than Gold and Stocks; Violent Price Action Could Ensue

Bitcoin’s (BTC) price may be sleep-inducing of late, but it's become so boring that a dramatic eruption could soon be coming.

According to digital asset analytics firm K33 Research, bitcoin's five-day volatility has sunk below that of gold, the Nasdaq 100 and the S&P 500. This only happened a few times in recent years, K33 senior analyst Vetle Lunde pointed out, and every occasion preceded periods of wild price swings.

With the exception of a brief, Ripple-related, mid-July move up to $31,800, bitcoin has traded in an increasingly tighter range for the past six weeks, its price mostly sticking between $29,000-$30,000, and then for the past few days rarely moving out of the $29,000-$29,500 area. At press time, it was changing hands at $29,100.

While, cryptocurrencies are popularly known for their dramatic changes in price, steadier periods are normal parts of every market cycle. However, this recent period of absent volatility is far from typical, the K33 report pointed out.

BTC’s 30-day volatility, which measures average price changes over the period, recently dropped to near a five-year low. At the same time, trading volumes also shrunk to multi-year lows, while derivatives activity has also declined sharply.

“A deep crypto sleep tends to be followed by a violent wake-up,” Vetle Lunde wrote. “The market is clearly in an unprecedented stable stage, which has typically acted as a massive pressure valve for volatility once it finally reignites.”

“My short-term thesis," he continued, "is that the market’s volatility pressure is about to climax and that an eruption is near."

Upcoming decisions on spot BTC ETFs and a court ruling in the lawsuit between GBTC fund issuer Grayscale and the U.S. Securities and Exchange Commission (SEC) could be potential catalysts over the next two months, Lunde explained. Grayscale is a subsidiary of Digital Currency Group, CoinDesk’s parent company.

Read more: Will 2023 Be the Year of the Bitcoin ETF?

However, he added, structural forces in the derivatives market could also induce volatility on their own without any news events as happened June 2020 or January of this year. During these squeezes higher, said Lunde, most traders positioned for further price drops by building short positions. Prices moving in the opposite direction forced traders to cover their positions adding fuel to the appreciation.

“Gradual but aggressive BTC accumulation is my preferred strategy at the time being,” Lunde advised, adding that the trend allows some contrarian strategies such as “buying farther dated out of the money call and put options to be rigged for a changing volatility climate in the future.”