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Bitcoin’s Historic Low Volatility May be Set to Change
Bitcoin's volatility has hit record lows due to macroeconomic uncertainty and scanty market liquidity. Nevertheless, indicators from the on-chain and options markets suggest the calm could be broken with a price swing in June.
The Bitcoin Volatility Index, a measure of daily price fluctuations in Bitcoin, reveals a 30-day volatility of 1.52%. This is less than half of the yearly averages Bitcoin has usually seen, which typically exceed 4%.
Glassnode, a leading on-chain analytics provider, suggests that the expectation of increased volatility is reasonable given that Bitcoin’s price history only contains 19.3% instances of such low volatility.
On-Chain Metrics Point to Possible Volatility Uptick
Glassnode's weekly update reveals that Bitcoin's monthly realized volatility slipped below the lower limit of the historical Bollinger Band. This typically presages an increase in volatility.
The volume of on-chain Bitcoin transfers on cryptocurrency exchanges has fallen to unusually low levels. The price, now hovering around the short-term holder bias, suggests a “profit and loss equilibrium for new investors," those who acquired coins during and after the 2021-2022 bull run. Presently, these newer investors are split evenly between profit and loss.
However, during the recent price correction, long-term holders (defined by Glassnode as coins held in a single wallet for over 155 days) showed signs of activity, a factor that often correlates with volatility.
Long-term Holders' Activity and Volatility
The image below illustrates the long-term holder (LTH) binary spending indicator. This tracks whether the average LTH spending over the past week is sufficient to reduce their total holdings. Past instances of increased LTH spending have often been followed by volatility spikes.
The recent Bitcoin correction caused a minor decline in this indicator, hinting that long-term holders divested on 4 out of 7 days, a rate reminiscent of similar exit liquidity events this year.
Analysts suggest that an equilibrium level of volatility is likely to be reached when market movements are primarily driven by the accumulation or divestment of long-term holder supply.
The Options Market Supports Expectation of Imminent Volatility
The options market echoes the anticipation of impending volatility.
Despite a significant expiration of $2.3 billion in notional value in May, the event was underwhelming. Yet, sustained suppression of volatility could signal a significant upcoming price move.
Bitfinex's recent Alpha report reveals that the DVOL index, which estimates expected 30-day future Bitcoin volatility, dropped to 45 from 50, a yearly low.
According to Bitfinex analysts, low expectations of volatility may result from upcoming market-moving events or from increased risk aversion among market participants.
Presently, options traders are exhibiting risk aversion and have shifted their bearish positions from May to June, as evidenced by the Bitcoin options put-to-call ratio increasing from 0.38 to 0.50. This suggests traders are turning increasingly bearish on Bitcoin.
As June approaches, Bitfinex analysts predict potential market turbulence and short-term price fluctuations, particularly around the month's end expiry. The potential "magnet" price levels, as per options market positioning, are the maximum pain levels for May and June’s expiration at $27,000 and $24,000, respectively.
