The price of Bitcoin fell to a new intraday low of $18,131. It fell to its lowest point since September 21. At first glance, it might seem like a good thing that Bitcoin is becoming less volatile than stocks. However, cryptocurrency traders warn that in a low-volume setting, that might not be a good thing.
According to Noelle Acheson, the author of the “Crypto is Macro Now” newsletter, the coin’s 30-day realized volatility has “dropped sharply” recently. According to Acheson’s compilation of Coin Metrics data, it has been hovering above 64% on an annualized basis for the past month and is currently at about 52%. In the meantime, BitVol, a volatility indicator, has “begun to break down,” falling close to its lowest levels since the spring, according to Jake Gordon at Bespoke Investment Group. The index is currently hovering around 69, down from over 111 in May.
Even so, trading volume has decreased. According to data from CoinMarketCap, daily readings are currently hovering around $47 billion, down from more than $100 billion at the beginning of the year.
Yassine Elmandjra, an analyst at ARK Investment Management, stated on Bloomberg TV on Tuesday that “low volatility in Bitcoin might not necessarily be a good thing, especially if it’s on low volume.” Elmandjra used the example of late 2018 when Bitcoin was trading around $6,000 and many anticipated that the apparent excessive pessimism would lead to a short squeeze, but the coin instead “dumped” to $3,000.
“So while low volatility is perhaps an indication that Bitcoin is becoming more boring and less contrarian, low volatility on low volume might not be great for Bitcoin.”
As the Federal Reserve and other central banks aggressively raise rates to combat inflation, cryptocurrency has suffered this year. In contrast to the hype-fueled mania of earlier years, this has driven many investors in digital assets away from the market and from day trading, especially those who had entered the market recently. Particularly absent from the market have been retail investors. Institutions have lately taken center stage, which could partly account for the drop in volatility.
According to Tim Grant, head of EMEA at Galaxy Digital, “the macro backdrop is really affecting us just as it’s affecting every other asset class.” this week on Bloomberg TV. It is no longer a retail asset class.
All of this has driven market observers to look for clues that Bitcoin and other tokens may be reaching a bottom. While the S&P 500 has lost about 25% of its value this year, Bitcoin has lost 60%. However, a large portion of the crypto selling took place in the first half of 2022, as shown by exchange-traded fund flows: In the third quarter, the amount of money leaving crypto-related funds decreased, possibly indicating that many bearish investors have already pulled out of the risky asset class.
On Thursday in New York, Bitcoin dropped about 2.6% to $18,131, its lowest price in about two weeks. With the low-vol, low-volume noxious mix, there is concern that such a situation could cause prices to fall more quickly in the event of a selloff.
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