Experts have warned that Bitcoin’s lower volatility could be a problem when paired with lower trading volumes, as it could lead to a significant sell-off in the market if things turn bearish.
In a new report, Bloomberg noted that Noelle Acheson, author of a popular cryptocurrency newsletter, noted that BTC’s 30-day realized volatility has “dropped sharply” to around 52% from over 64% in the past month. Similarly, Bespoke Investment Group’s Jake Gordon noted that a volatility gauge called VitVol has “begun to break down.” Per Gordon, it dropped from 111 in May to 69.
CryptoCompare’s Bitcoin Volatility Index (BVIN), which is an “ implied volatility index that also represents the fair value of a bitcoin variance swap.,” has meanwhile dropped from around 100 in September to now stand at 65.6.
Per Bloomberg, trading volumes have dropped when compared to the beginning of the year, and while lower volatility could be seen as a good thing it could stop some from investing in the cryptocurrency space, as some investors came to it attracted by the wild price swings the space is known for.
Bloomberg’s report quotes Ark Investment Management analyst Yassine Elmandjr saying that “low volatility in Bitcoin might not necessarily be a good thing, especially if it’s on low volume.” Per the analyst, in late 2018 BTC was trading at $6,000, low volume help the coin dump to $3,000.
Cryptocurrency prices plunged this year over the Federal Reserve and other central banks raising interest rates in a bid to tame inflation, which pushed investors away from risk assets. The drop is believed to have made institutions leading players in the space, which could help explain the volatility drop.
Experts believe that a mix of low volatility and lower trading volumes could help prices plunge faster in the event of a sell-off. Steven McClurg, co-founder, and Chief Investment Officer at Valkyrie Investments was quoted saying:
In an overall bear market, you do not want low volatility coupled with low volume because we’re already in recessionary period, we believe it could get worse and the Fed will continue to raise rates and people might start taking money off the table.
Notably, as CryptoGlobe, CryptoCompare’s latest Exchange Review report has revealed that last month BTC spot trading into BinanceUSD ($BUSD), the stablecoin issued by leading cryptocurrency exchange Binance, jumped 79.2% to 3.84 million BTC last month, benefitting from the exchange’s move to auto-convert users’ USDC, USDP, and TUSD into BUSD.
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