It’s a tense time for bitcoin investors as the capricious cryptocurrency has been unusually quiet over the past four weeks. Bound in the range of $28,452 and $25,800, even the end of the U.S. debt ceiling saga did little to whet risk appetite.
According to CryptoCompare, bitcoin’s volatility index is near 64, well below the peak of 116.5 touched in January. Daily cryptocurrency spot trading volumes, which were above $20 billion for most of the year, have been around $10.6-$12 billion in the last two weeks.
Noelle Acheson, an economist who has tracked the crypto sector for seven years, believes this indicates a reluctance of investors and traders to take positions in either spot or derivatives. Global head of research at financial services group StoneX, Matthew Weller, echoed this sentiment, saying that “traders are waiting for a definitive break away from the $27,000 level that has magnetically pulled prices back consistently.”
Despite bitcoin being the best-performing asset of 2023 with gains of about 62%, it has slid nearly 14% from a peak of $31,035 in April. This has kept traders guessing about its next move.
Long-time crypto watcher, Luuk Strijers, chief commercial officer at derivatives exchange Deribit, believes the lack of anything interesting is also interesting. Bitcoin’s 7-day and 30-day implied volatility – options traders’ expectation of future price turbulence – have slid to January lows of under 40%, after peaking at 76% and 67% in March. Strijers believes people might start trading volatility in this market, buying options in the absence of a price move.
Analysts at Bitfinex believe the maximum pain level for the June 2023 options expiry for bitcoin is around $24,000, which could act as a support or resistance level. They added that traders should be prepared for potential market turbulence and short-term price fluctuations in the second half of the month.
Longer term, in 2024, they expect bitcoin’s halving and the U.S. elections to ratchet up volatility. Funding rates, which measure the cost of holding bitcoin via futures, have edged lower, indicating investors are less willing to pay to be long. It was last trading at 0.0098%, way below the 0.0302% seen in March.
Thomas Kralow, a crypto hedge fund manager at Kralow Capital, said that “it’s markets like these where people lose money – because of false beliefs that we are finally turning the corner, which is incredibly hard to predict.” Therefore, Kralow has a few trades open to hedge in case bitcoin drops down to $20,000.
It’s clear that the bulls are hiding as the market waits for a definitive break away from the $27,000 level. Despite this lull, traders should be prepared for potential market turbulence and short-term price fluctuations as bitcoin’s halving and the U.S. elections will likely increase volatility.