The rise in implied volatility and increasing leverage in the derivatives market point to the likelihood of sharp Bitcoin price swings, Glassnode analysts say.
#Bitcoin has traded into a narrow price range for over 2 months, as more traders move risk neutral cash-and-carry positions.
But derivatives markets are now pricing in a high volatility move just over the horizon.
Read our analysis in The Week On-chain👇https://t.co/cyTLZGqfCU
— glassnode (@glassnode) March 21, 2022
Amid the two months of narrow-range trading, implied volatility in the Bitcoin options market has exceeded the 60%-70% price corridor. Earlier, a similar dynamic was observed on the eve of the May 2021 crash, the liquidation of shorts in July and in October.
In the Bitcoin futures market, open interest (OI) reached 1.94% of Bitcoin’s market capitalization. Previously, crossing the 2% threshold led to a sharp reduction in leverage.
A similar pattern formed in the perpetual contracts market — OI at 1.28% of BTC’s total market value has entered the “risk zone”.
Experts estimate that the strongest buying activity on the spot market is concentrated in the American and European markets, while selling pressure mainly forms during Asian daytime.
Similar trends have been evident since 2020. Experts attributed Western traders’ reactions to the ultra-dovish monetary policy of the ФРС and the ЕЦБ, which reduced fiat purchasing power. Regarding the dominance of selling by their Asian counterparts, they cited subdued expectations due to the impact of the COVID-19 pandemic and the liquidation of longs after aggressive purchases at the market top in October–November 2021.
At the moment on-chain metrics align with a bear market. New Bitcoin addresses are increasing at a pace of ~110,000 per day, indicating a modest rise. A similar pattern is seen in the transactions count indicator: the 14-day moving average sits around 215,000, well below the levels seen in 2019-2020.
By now the share of large transactions (amounts equivalent to $1 million) has risen from the 2021 level of about 50% to the current 65%-70%. In the backdrop of a slowing overall volume, this signals that a bear scenario is being realized, say analysts.
Supply of hodlers’ coins has stagnated after the establishment of a new all-time high in October. Analysts concluded that long-term accumulation by holders was offset by their spending in the subsequent period.
Since January the number of coins whose last transactions occurred between three and six months ago has been rising — potentially moving into hodlers’ territory. During this period, the metric rose by 480,000 BTC, close to the 510,000 BTC accumulated after the March 2020 collapse.
Keeping this trend would indicate a drop in the price sensitivity of this component of Bitcoin’s supply. For bulls, this would be constructive.
Bitcoin tested the $43,000 level on March 22.
Earlier, Nigel Green, head of DeVere Group, predicted Bitcoin to rise to $50,000 during March.
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