A peak in the accumulation periods of Bitcoin is usually followed by an increase in volatility. No significant peak has been observed in volatility since October 2019.
Concerning the Bitcoin market volatility to come this quarter, only the tip of the iceberg might have been seen, as two recent reports suggest. Meanwhile, the door has been left open to the possibility that lower volatility might become a trend for the Bitcoin market.
The January 2020 volatility report by the US-based exchange Kraken indicates that the Bitcoin market could be heading for a period of increasing volatility. The assumptions of the exchange are based on a model showing a connection between the number of Bitcoin wallets with balances between 10 and 100 BTC, associated with the so-called “whales” and the volatility in the Bitcoin market.
The report entitled “A seismic change?” suggests that the number of addresses with amounts between 10 BTC to 100 BTC usually increases steadily before stagnating and then retreating before a “jump in volatility” is witnessed.
Also, the report states that, since this group reached the floor last November, it seems to have changed to the accumulation phase. For this reason, it was advised not to expect January to be the most volatile month of the first quarter of 2020, but instead as one with a small bullish trend, at most.
If history repeats itself, it can be predicted that the accumulation phase will end in the weeks or months to come and that volatility will rise again, as concluded by the author of the report.
Apart from Kraken, the blockchain research company Arcane Research noted that the volatility in Bitcoin’s most recent bullish rally has been so far much lower in comparison to last year’s bullish rally. In their last weekly update, they said that they have not seen a greater peak in volatility since last October.
Besides, the report by Arcane Research also argues that lower volatility is a sign of a healthier market, which has a greater selection of financial instruments to trade. This situation indicates that the current valuation is more robust than it has been seen in a long time. The recent low volatility may be related to the growing market of Bitcoin derivatives, which allows keeping the price of the most stable assets.
The report also noted that the bullish sentiment has stopped in the market. However, it indicates that retail investors remain more bullish, in comparison to institutional investors, judging the differences in the premiums of Bitcoin futures contracts in the exchange focused on the institutional investors CME Group, in contrast to retail-focused futures exchanges, among which are Kraken, BitMEX, Deribit, and FTX.
As previously reported, retail-focused futures exchanges are still far ahead of more professional markets, such as CME and Bakkt, in terms of volume of operations. Despite much speculation about financial institutions entering the market, the latest information suggests that Bitcoin price movements are, to a large extent, led by professional traders and investors.
By Alexander Salazar