Cryptocurrency traders are warning that in a low volume environment, this might not be a great thing.
At first glance, bitcoin is becoming less volatile than stocks which might seem like a positive development. But cryptocurrency traders caution that in a low volume environment, this might not be a great thing.
The currency’s 30-day volatility has fallen “sharply” in recent days, according to Noel Acheson, author of the “Crypto is Macro Now” newsletter. It is currently around 52% after spending the past month above 64% on an annual basis, according to Coin Metrics data compiled by Acheson. Meanwhile, Jake Gordon of Bespoke Investment Group points to a volatility gauge called BitVol, which is “starting to crash,” dropping near its lowest levels since the spring. The index currently stands at just above 69, down from over 111 in May.
However, the trading volume has also decreased. Daily readings are hovering around $47 billion right now, down from more than $100 billion at the start of the year, according to data tracker CoinMarketCap.com.
And while low volatility is usually welcome in the stock market, for example, the combo can cause a problem for Bitcoin, as there are a lot of speculators who enter the space just to stir up volatility.
“Low volatility in bitcoin may not necessarily be a good thing, especially if it is of low volume,” Yassin al-Manjar, an analyst at Ark Investment Management, said on Bloomberg TV on Tuesday. Elmandgra cited in late 2018, when bitcoin was hovering around $6,000 and many expected what appeared to be an overly pessimistic sentiment to lead to a short squeeze, though the coin was instead “thrown” to $3,000.
“So while lower volatility might be an indication that bitcoin is getting more boring and less contradictory, lower volatility over lower volume might not be great for bitcoin.”
Cryptocurrencies have suffered this year as the Federal Reserve and other central banks aggressively raised rates to cool inflation. This has driven a lot of digital asset investors – especially those who have been in over the past few years – away from the space and out of day trading, a big change from the obsession that has been fueling the hype in years past. Retail investors, in particular, were missing out on the action. In the meantime, institutions have recently become the main actors, which may help explain why volatility has declined.
“The overall background really affects us just as much as it affects every other asset class,” Tim Grant, head of EMEA at Galaxy Digital, said on Bloomberg TV this week. “It’s not a retail asset class anymore.”
All of this prompted market watchers to try to decipher the signs of bitcoin and other coins likely to hit the bottom. Bitcoin is down 60% this year, while the S&P 500 is down about 25%. However, a lot of cryptocurrency selling took place in the first half of 2022, as the inflows of exchange-traded funds reflect the following: Funds flowing from crypto-related funds slowed in the third quarter, a sign that many outbound investors may be vulnerable. to decline. Already stacked up from the risky asset class.
Bitcoin was down about 2.6% to $18,666 as of 6:55 a.m. in New York on Thursday, its lowest level in nearly two weeks.
The fear of the harmful mix of low volume and low volume is that such an environment could mean faster price drops in the event of a sale.
“In a bear market in general, you don’t want low volatility combined with low volume because we’re already in a recession, and we think it could get worse and the Fed will keep raising interest rates and people may start taking money off the table,” said Stephen McClurg, co-founder and chief executive officer. Investment Officers at Valkyrie Investments, Digital Asset Fund Manager “When trading volume is low and volatility is low, it will cause prices to fall faster, and this may cause higher volatility.”
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