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Key Takeaways
- Crypto volatility has been dropping all year, with Bitcoin’s volatility now at three-year lows
- Volume is also dropping, as the calm markets are not welcomed by traders
- Despite downward-trending volatility, crypto remains highly volatile when compared to other asset classes
Crypto markets are known for violent volatility, capable of both spiking and collapsing in the blink of an eye.
Thus far this year, however, that hasn’t been the case. Volatility has been trickling steadily downward across the space. Assessing the realised volatility of Bitcoin over a rolling one-month window, the metric is currently at a three-year low.
This comes despite Bitcoin having had a bumper year thus far, the asset currently up 76%, treading water around the $30,000 mark. In the past, Bitcoin has oscillated wildly, but this run-up from the low of $15,500 late last year has been distinguished by a steady climb rather than the turbulent ups and downs we have come to expect.
The pattern is not unique to the world’s biggest crypto, either – volatility is falling across the board. The easy way to illustrate this is by looking at Ether. Historically, the price of ETH has been more volatile than BTC, but the divergence has narrowed this year, and Ether is now trading with similar volatility to its big brother.
This relative calm in crypto markets is good on one level, given one of Bitcoin’s most-cited criticisms is its extreme volatility, which most agree it will need to overcome should it ever take the status of a reputable store of value.
Not everyone is a winner, though. Traders rely on volatility and hence these serene times are not exactly a boon. If we look at spot trading volume, the drawdown has been steep. Granted, there are myriad factors at play here, including regulation, a drawdown in prices, lockdowns ending, scandals (FTX and the SEC lawsuits) and so on, but the lack of volatility is not helping.
The below chart from The Block shows quite how far spot volume has fallen.
Even derivatives trading volume, which had been more stout, has fallen off since April – likely a better gauge for traders than assessing spot volume. Liquidity is not as much of a concern in derivatives markets as it has become in spot markets, but the last few months have begun to see some thinning out there, too.
While the falling volatility is notable, it should be noted that crypto remains a league above trad-fi markets with regard to this metric. Even this three-year low still translates to an annualised volatility of 25% for Bitcoin, which would not be deemed low-risk by any stretch of the imagination.
To put this up in lights, comparing Bitcoin to gold is always illustrative. Gold is the store of value which has been around for thousands of years, the shiny metal known for its inflation-hedging abilities and lack of correlation to risk assets. For many, Bitcoin’s vision is to claim the title of some sort of digital gold.
The below chart displays the current gulf between these assets – even after the dampening down in crypto volatility this year, it’s on a completely different planet to gold.
Alternatively, one can simply compare the daily returns of the assets, which conveys the same thing.
Thus, while crypto volatility is currently sluggish, it has a long way to go before it matches gold. More importantly, there is no guarantee that this volatility will stay low. Quite the opposite – given the low liquidity in the space, less capital is needed to move crypto markets than has been the case previously.
In light of this, it feels like the downward trend in volatility (exacerbated in the last couple of months by a classic summer lull in trading) should return. Not to mention the fact that with the interest rate hiking cycle coming to a close, markets could be at an inflection point. It is always hard to predict the future in crypto, but it feels unlikely that digital assets’ volatility will stay at these uncharacteristically low levels for long.
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Christmas has come and gone and we are now just a few days short of saying goodbye to 2022 — a year that many cryptocurrency investors and traders would perhaps best like to forget.
What Happened: Since it is possible to trade Bitcoin BTC/USD, Ethereum ETH/USD and Dogecoin DOGE/USD during the holidays, it is pertinent to consider how to approach digital assets during the holiday season.
Benzinga discussed holiday cryptocurrency trading and the upcoming year with OANDA Senior Market Analyst Edward Moya and Amsterdam-based cryptocurrency trader Michaël van de Poppe.
Major Coins During Holidays: Moya said that Bitcoin’s performance will benefit from standard holiday trends but the likely focus will be on whether the U.S. Federal Reserve is nearly done with raising rates. On Ethereum and Dogecoin, Moya said, “Ethereum will eventually trade on technological adoption but for now it will follow whatever cues Bitcoin takes from the broader markets.”
Dogecoin interest is “fading,” according to Moya but it could get a “boost if Musk follows through on plans to make dogecoin an accepted form of payment.”
“If Twitter does come out with their own wallet, that could be good news for dogecoin, but mainstream acceptance still seems unlikely.”
Expect the Unexpected: Van De Poppe has some advice on how to trade coins during the period of time when trading volume usually is on the lower side.
“The only expectations were given that Bitcoin would be trending south and go lower, while social media remains to be significantly negative across the board. That’s usually a good period to start investing into the actual asset,” said Van De Poppe.
However, Van De Poppe suggested inexperienced traders to avoid periods with volatility and when volumes are significantly low.
“Organic price action has often disappeared and that’s why you see those ‘chops’ taking place in which price moves sideways for days, after which it drops by a few percent in 1 minute and it goes back into sideways notion. Avoid trading during these times.”
The trader advises instead to hold for a minimum of 3-6 months and build the ability to “learn and digest” information about markets.
“Evaluate your emotions and behavior during the past few years and start building. Right now is not the time to be trading, but right now is the time to be educating yourself so you will be a better trader during the better times.”
Buckle Up For A Bumpy 2023: The two analysts share their thoughts on how 2023 will pan out for the trio of Bitcoin, Ethereum and Dogecoin. Moya advised investors to brace themselves for a bumpy ride. “Buckle up, it will be a bumpy ride. Crypto is not trading on its own fundamentals and the broader markets could see enhanced volatility as uncertainty persists on whether the economy will have a recession or soft landing.”
Van De Poppe doesn’t see either Bitcoin or Ethereum to be making new all-time highs in 2023. He said, “What I think we’ll be seeing is a case of a relief rally, in terms of 2019 perspectives. In that way, Bitcoin could run towards levels at $35-45K, to correct afterward. This would mean that Ethereum can come back towards $2,500-3,000 as well and show significant strength.”
Macroeconomics and regulation could be the two large influencers of Ethereum price action next year, according to the analyst.
Ethereum “would be showing more strength in the coming bull cycle as the fundamental growth through PoS will be starting to be seen. Remember, 2017 was also driven through Ethereum, now probably we’ll see it again.”
On Dogecoin, Van De Poppe says he has “no idea” if the market is going to run upwards.
However, the trader concurred with Moya on the Elon Musk effect — “I think that the crucial variable of Dogecoin lies in the hands of Elon Musk, whether or not he’ll be deciding to integrate Dogecoin into Twitter.”
Clean Up In Store: 2022 was dominated by the unraveling of LUNA Classic (LUNC), FTX, and other cryptocurrency platforms. The two analysts expect 2023 to be the year when regulations will take center stage.
“Crypto regulation and investigations will be the dominant theme, and if any fresh strains hit the crypto market, downward pressure could resume. Regulation could prove to be troubling for stablecoins or with crypto exchanges. 2023 will be the year lots of corrupt parts of the crypto market get cleaned up,” said Moya.
Major coins were seen trading in the green on Monday evening as the global cryptocurrency market cap rose 0.4% to $812.5 billion at 7:15 p.m. EST.
| Coin | 24-hour | 7-day | Price |
|---|---|---|---|
| Bitcoin BTC/USD | 0.7% | 3.1% | $16,956.37 |
| Ethereum ETH/USD | 0.95% | 5.4% | $1,230.20 |
| Dogecoin DOGE/USD | 0% | -6% | $0.076 |
| Cryptocurrency | 24-Hour % Change (+/-) | Price |
|---|---|---|
| Terra Classic (LUNC) | +8.4% | $0.00016 |
| Lido DAO (LDO) | +6.1% | $1.03 |
| XRP (XRP) | +5.5% | $0.365 |
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Why It Matters: The two largest cryptocurrencies — Bitcoin and Ethereum — saw gains below 1% on Monday evening.
The cryptocurrencies followed U.S. stock futures which were in the green at the time of writing.
Bitcoin’s 24-hour trading volume was seen as 5.2% higher at $12.3 billion, while Ethereum’s intraday trading volume declined 14% to $3.4 billion at the time of writing.
Cryptocurrency trader Michaël van de Poppe said, “I think that we’ll be continuing the grind towards the upper levels as a new year is approaching.”
The dollar index, a measure of the greenback’s strength against a basket of six currencies, is poised to make a “big move” in the coming weeks, according to Justin Bennett.
Risk assets typically move inversely to the Index. Bennett pointed out that the DXY has “carved a triangle pattern in December” with support near 104 and resistance at 104.50.
“The index is approaching the apex of this terminal pattern, which means it must make a move later this week,” Bennett said in a blog post. At the time of writing the index was seen at 104.33.
Chartist Ali Martinez pointed out that large transactions on the Bitcoin network with a value greater than $100,000 have hit a new yearly low of 8,040.
“This indicates low whales and institutional investors activity around on the [BTC] network.”
Meanwhile, a strong winter storm, which swept across North America, caused Bitcoin miners to be shut down throughout the country. Bitcoin mining hash rate fell by 100 exahashes per second to 156 EH/s — a decline of 40%.
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