bitcoins (BTC) the lack of volatility has been the main talking point among traders for the past two weeks and the current sideways trading in the $18,000-$25,000 range has been in effect for 126 days. A majority of traders agree that a significant price move is imminent, but what exactly do they base this thesis on?
Let’s look at three data points that predict a spike in Bitcoin volatility.
Moderate volatility and seller exhaustion
According to Glassnode research, the “bitcoin market is primed for volatility,” with both on-chain and off-chain data sending out multiple signals. The researchers note that realized volatility over the week fell to 28%, a level that is usually followed by a large price change.
Exploration of Bitcoin’s aSOPR, a metric that “measures an average realized profit/loss multiple for coins spent on a given day”, shows:
“A large divergence is currently forming between the price action and the aSOPR metric. As prices trade sideways or lower, the magnitude of locked-in losses decreases, indicating an exhaustion of sellers in the price range current.
In addition to the divergence between the price and the adjusted SOPR, short-term Bitcoin holders are approaching their break-even point as the short-term holder’s SOPR approaches 1.0.
This is important because a reading of 1.0 during a bear market has historically worked as a resistance level and traders tend to exit positions near the breakeven point.
If aSPOR were to peak above 1.0 and turn the level towards support, it could be an early sign of an incipient trend change within the market.
Trading indicators are also at pivot points
Several technical analysis indicators are also signaling that a strong directional move is in the charts, a point noted by independent market analyst Big Smokey.
According to analyst:
The Bitcoin price range, SuperGuppy and Bollinger bands are getting very tight. ETH looks the same. Do you know what that means. pic.twitter.com/e7s6ScG7jz
— Big Smokey (@big_smokey1) October 18, 2022
Crypto research firm Delphi Digital recently published a similar perspective, citing “compression” within the Guppy multiple moving average as a sign of “near-term momentum and the potential for a rally as this cohort tries to reverse the longer-term moving averages.”
On October 10, Delphi Digital researchers referenced the Bollinger Band Width Percentile (BBWP) metric and suggested the possibility of “a big brewing move for BTC.” The researchers explained that “historically, BBWP readings above 90 or below 5 have marked major tipping points.”
The State of Bitcoin Derivatives
Crypto derivatives markets are also sending out several signals. Bitcoin Futures Open Interest reached an all-time high of 633,000 contracts, while trading volumes fell to a multi-year low of $24 billion a day. Glassnode notes that these levels were “last seen in December 2020, before the bull cycle broke through the 2017 $20,000 ATH cycle.”
As you would expect during a bear cycle, liquidity, or the amount of money flowing in and out of the market, has decreased, reinforcing the reason to believe that a possible spike in volatility could lead to a big swing in price.
While derivatives metrics like open interest on futures, long liquidations, and open interest on coin-margined futures are breaking multi-year records, it’s important to note that neither provides absolute certainty about market directionality. It is difficult to determine whether the majority of market participants are positioned long or short and most analysts would suggest that the surge in open interest reflects the hedging strategies in play.
One thing is certain, and that is that on-chain data, derivatives data, and basic technical analysis indicators all point to imminent explosive movement in the price of Bitcoin.
Bitcoin’s current extended period of low volatility is somewhat unusual, but examining the data presented by Glassnode and Delphi Digital could provide valuable insight into what to expect when certain on-chain metrics reach specific thresholds, which should give investors ideas on how to position themselves.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.