A fall in implied and realized volatility to historical lows has created a backdrop of “wild” moves in the near term, according to Glassnode experts.
The #Bitcoin market is primed for a burst of volatility, with both realized and options implied volatility falling to historical lows.
Futures open interest has hit all-time-highs, despite liquidations being at all-time-lows.
Read our analysis here 👇https://t.co/b9HjwIRe32
— glassnode (@glassnode) October 17, 2022
In historical retrospect, episodes like the current one, with realized volatility dipping below 28%, were precursors to significant price moves in both directions.
There is currently a significant divergence between price and the indicator aSOPR. Against a prevailing downward price movement, the magnitude of realized losses is diminishing, signaling seller exhaustion.
As aSOPR approaches the breakeven level of 1.0, the odds of a volatility spike rise — either via a breakout or another pullback from that threshold.
A similar pattern is observed with the SOPR indicator with regard to speculators.
In 2015–2016, a series of tests at the 1.0 level ended the bear market — a shift from providing liquidity on the way out to buying on the dip. In 2018–2019, the opposite occurred — short-term market participants absorbed all demand in search of liquidity to exit remaining positions.
Predispositions for heightened volatility also emerged in the derivatives market. Implied volatility in Bitcoin options fell to a historical low of 48%. Previously, after reaching this zone, markets saw substantial price spikes, accompanied by deleveraging.
Daily trading volumes on futures markets fell to $24 billion. The last time such a low was observed was in December 2020, just before the breakout above $20,000.
Analysts stressed that this could signal low liquidity. In turn, this multiplies price moves if the market gains momentum in either direction.
Open interest, after Terra collapse, rose by 80% to a record 633,000 BTC. Relative to exchange balances, which had been shrinking recently, OI has also reached an all-time high.
“This is another sign of low liquidity, which could amplify the impact on spot markets if part of this deleveraging starts to unwind”, — the analysts concluded.
Earlier, Glassnode analysts concluded that a bottom was forming in Bitcoin’s price, based on behavioural patterns, market structure and on-chain indicators.
Earlier, LookIntoBitcoin analysts proposed accumulating digital gold amid signs of forming the bottom of the market cycle.
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