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Lack Of Volatility
One of the concerning dynamics in the market right now that we want to focus on is the lack of volatility. The high period of spot volume activity and relatively lower derivatives activity has really done little to move the price and bear markets are known for testing market participants’ patience when it comes to duration. We got some volatility with the most recent Consumer Price Index (CPI) inflation print, but bitcoin’s historical volatility is still at record lows.
Now, everyone wants to see this bitcoin price range break one way or the other; a larger range accumulation usually leads to a larger breakout move. It’s really something to see bitcoin’s historical volatility below the United Kingdom gilt market, but now it’s even below the average equity and bond ETF. This is when you know the market’s completely flipped around. Either that speaks to a lack of interest in bitcoin right now with a much larger move brewing or bitcoin’s entire asset profile has changed all of a sudden. We lean towards the former and history has shown that this record-low level of volatility doesn’t last long and has led to some pretty significant price breakouts and breakdowns.
Even implied volatility in the market via options pricing is at some record lows (and falling) across different durations.
In the four significant events of low-percentile historical volatility, we’ve seen three moves of upside breakouts and one significant down move to new lows back in 2018. It’s a small sample size from which to draw directional conclusions but a big move seems to be coming soon and the 2018 price analogue is one we’ve discussed before — especially given our expectations that the S&P 500 sees lower lows from here before this cycle is over. To quote a previous piece, “What To Expect When You’re Expecting Volatility”:
“While the lack of recent volatility in bitcoin could be a sign that much of the leverage and speculative mania of the bull market has been almost entirely washed out, our eyes remain on the outsized legacy markets for signs of fragility and volatility, which could serve as a short/intermediate-term headwind.”