A brewing storm in the Bitcoin market could trigger significant price volatility, experts warn, as calmness gives way to turbulence.
The recent calm in the Bitcoin market may be short-lived, potentially setting the stage for a storm that could trigger significant price volatility. Insights from Derive, a decentralized crypto on-chain options platform, suggest that several factors could contribute to this turbulence.
Bitcoin is a decentralized digital currency that allows for peer-to-peer transactions without the need for intermediaries.
It was created in 2009 by an individual or group using the pseudonym Satoshi Nakamoto.
Bitcoin operates on a blockchain, a public ledger that records all transactions.
The total supply of bitcoin is capped at 21 million, and new coins are created through a process called mining.
Bitcoin's value has fluctuated significantly over the years, with prices reaching as high as $64,000 in April 2021.
Several developments could trigger significant price swings in bitcoin. A ceasefire (or lack thereof) in Ukraine and significant shifts in crypto regulatory policy under the Trump administration are among the key factors to consider. Additionally, the Federal Reserve’s rate decision is expected to move markets, with traders pricing two to three rate cuts later this year.
Key volatility metrics have declined significantly since March 12, nearing monthly lows. The weekly at-the-money (ATM) volatility has dipped below 50% to 49%, approaching monthly lows of 45%. Realized volatility has also dropped from 91% at the start of the month to 54% today.
According to Derive’s founder, Nick Forster, volatility is mean-reverting, meaning that the low-volatility regime could soon pave the way for price turbulence. ‘Volatility is mean-reverting, so we can expect it to rise soon, likely to levels seen in February (60-70%),‘ Forster added.
Whether prices rise or fall, volatility can increase, suggesting that significant price swings could occur in either direction. The expected volatility boom could happen to the downside should equity markets continue to fall, accelerating the decline in crypto prices.
Potential Fed rate cuts could be limited, according to BlackRock. Markets have priced in about two to three 25 basis point rate cuts this year, versus expectations for just one earlier this year. This reflects U.S. recession fears even though economic conditions don’t point to a downturn.
The recent calm in the Bitcoin market may not last, potentially leading to significant price volatility. Several factors could contribute to this turbulence, including developments in Ukraine and shifts in crypto regulatory policy. As volatility is mean-reverting, it’s essential to remain vigilant and prepared for potential price swings.
