Is Bitcoin’s Low Volatility a Bull Market Signal?

The latest report from Glassnode Insights, titled “The Week On-Chain,” highlighted the fact that Bitcoin (BTC) has reached historically low levels of volatility. This has caused the separation between the asset’s Bollinger Bands to be a mere 2.9%, indicating an exceptionally narrow trading range. This situation has only been seen twice before: in September 2016, when BTC traded near $604, and in January 2023, when the asset maintained a steady value of $16,800.

The report explains that periods of reduced volatility, coupled with investor fatigue, can cause coins to move based on their cost close to the current price. This implies that traders are likely making marginal profits or losses with their exits. The analysis concludes that establishing a new price range is necessary to stimulate fresh spending, potentially contributing to an anticipated increase in volatility.

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Is Bitcoin’s low volatility a reflection of broader markets?

The range of Bitcoin prices, from $29,050 to $29,775 over the past three weeks, has been unusually tight, resulting in an annualized 30-day volatility of 17%. The big question is whether this trend is unique to cryptocurrencies or if it is also seen in traditional markets, like stocks, oil, bonds, and currencies.

The S&P 500 and oil price (WTI) 30-day volatility is currently at its lowest level since November 2021, while the DXY index has seen an increase from 6% in May 2023 to 8%. Additionally, the 10-year Treasury yield has risen from its 18-month low of around 10% to 16%. These changes could have had an impact on the decrease in Bitcoin’s volatility.

Glassnode data shows that there is a significant concentration of short-term holders’ price distribution between $25,000 and $31,000. This is similar to previous bear market recoveries. However, many of these investors are still holding positions with losses, which creates short-term selling pressure.

The supply held by long-term holders has also reached an all-time high of 14.6 million BTC, while the supply held by short-term holders has dropped to a multi-year low of 2.56 million BTC. If 10% of the 1.77 million BTC held by long-term investors at $47,000 or higher change their positions before Bitcoin surpasses $40,000, this would be equivalent to about 6 and a half months of the current mining output. This highlights the potential impact of a global economic recession on Bitcoin’s price.

The low volatility in the S&P 500, oil, and Bitcoin markets could be a sign of an upcoming period of turmoil. Could Bitcoin serve as a hedge against inflation? It remains to be seen.