All good things must come to an end as Glassnode finds volatility back in Bitcoin in a new report [BTC] market last week. According to the blockchain analytics platform, the leading coin has been trading during a period of historically low volatility at press time. In addition, various in-chain and off-chain metrics point to an impending period of “increased volatility” for the King’s coin.
Prior to last week, the bitcoin market was characterized by an uncharacteristically low degree of price volatility. This was in stark contrast to the broader financial markets (equity, credit and currency markets) that were highly volatile.
According to Glassnode, if the historical antecedents of bear markets are anything to go by, with the current volatility in the market, BTC price could move in any direction once the volatility subsides.
Support for the effect!
Glassnode also found a significant difference between BTC price action and the Spend Adjusted Production Profit Ratio (aSOPR). For context, when exactly one gauge is in an uptrend, it often acts as support as buyers tend to buy the dip. Conversely, when aSOPR equals one in a bear market, it acts as resistance as investors seek out all available exit liquidity.
In the current market, there has been a price variance / aSOPR skew. As the price of BTC decreases, the amount of losses recorded will also decrease. Glassnode found that this indicates seller exhaustion within the current price range.
With the weekly average aSOPR approaching a breakeven value of 1.0 from below, Glassnode said,
“It is increasingly likely that volatility is looming, either in the form of a breakout or another drop.”
Glassnode also looked at the aSOPR metric for cohorts of participating investors. I looked at the contributions of BTC short-term holders (STHs) and long-term holders (LTHs) and found similarities. Glassnode found that the current situation was identical to the BTC bear markets between 2015-16 and 2018-2019.
For STH holders, when the price/aSOPR divergence occurred in the 2015-2016 bear market, buyers bought the dip rather than the expected panic sell. But when the same thing happened again in the 2018-2019 bear market, sellers outnumbered buyers and many wanted to get out of the market.
In the current market, Glassnode found that STH-SOPR is once again approaching the break-even threshold. This usually precedes a period of extreme volatility in the Bitcoin market.
For long-term BTC holders, Glassnode found that their spent earnings continued to “suck up at historic lows.” According to the report, such a period of declines usually occurs “in the direction of the depths of a bear market with only 3.3% of trading days incurring significant losses.”
Options and futures contracts
Finally, the BTC options and futures markets are not excluded from general market volatility. Regarding the options market, option pricing for short-term implied volatility (IV) reached an all-time low of 48% last week.
Likewise, trading volume has also fallen to multi-year lows of $24 billion per day in the futures market. This, according to Glassnode, was last seen in December 2020.