Crypto Volatility Approaching
Signs Bitcoin may soon break out — to either direction
Based on IntoTheBlock’s weekly newsletter. If you enjoy it, and would like to receive it every Friday make sure to sign up here!
Markets shrugged off the higher than expected CPI, but signs of volatility continue to loom over crypto. Key financial metrics suggest a break out for Bitcoin could be approaching as we’ll dive into.
We then cover the increasing leverage coming into Bitcoin perpetual swaps, the decreasing miner holdings and the potential impact these trends can have over the near-term.
Fees — Sum of total fees spent to use a particular blockchain. This tracks the willingness to spend and demand to use Bitcoin or Ether.
- Bitcoin fees decreased by nearly 30% despite its price relatively outperforming most of the market
- Ethereum fees spiked by over 50% with a new free to mint token, XEN Crypto, being the largest consumer of gas
Exchanges Netflows — The net amount of inflows minus outflows of a specific crypto-asset going in/out of centralized exchanges. Crypto going into exchanges may signal selling pressure, while withdrawals potentially point to accumulation.
- Bitcoin outflows remain relatively high, recording its fourth consecutive week with over $100M being withdrawn from exchanges
- Ether outflows were slightly lower at $159M, but growing relative to last week
Crypto Volatility Approaching?
Bitcoin has relatively outperformed traditional markets and most crypto-assets, dropping just 3.47% over the past 30 days. While stock indices reached new yearly lows this week, crypto continues to hold above them in a sideways trend — though there are signs that prices may soon break out.
Holding $18k — Bitcoin buyers have been eager to buy below $19,000
- The higher than expected CPI numbers on Thursday briefly led Bitcoin to as low as $18,200 though it quickly reverted back to over $19,000
- Intra-day correlations with stock indices remain high, but markets are showing signs of looking past bad news
Overall, volatility in crypto has been trending lower despite losses in TradFi accelerating.
< 40% Volatility — Bitcoin’s annualized volatility based on the last 30-days of price action has fallen below a key level
- The last six times Bitcoin’s volatility fell to 40% or below (orange line), BTC’s price moved over 20% in either direction within 2–4 weeks
- 4/6 of these moves have been to the downside, with the most evident cases being May and November 2021, and April 2022
- More recently in early September, Bitcoin’s volatility dropped below 40% and preceded a 22% rebound in price
In addition to this trend, increasing leverage in Bitcoin perpetual swaps suggests the return of volatility may be looming.
Perpetual Swaps 3x — The size of perpetual swaps’ open interest relative to Bitcoin’s market cap has more than tripled in 2022
- The growth in the OI/MC ratio points to a growing amount of leverage betting on Bitcoin and broader adoption of derivatives
- In the most recent 10%+ rallies in Bitcoin’s price, the OI/MC ratio has spiked, suggesting many of the perpetual swaps investors being long on their trades
- Binance data further validates this, with 64% of perp investors being long at the moment
While this highlights bullish momentum picking up, it can be a double-edged sword since in the case that price drops lower there would likely be large liquidations exacerbating a potential fall below $18k.
Miner Holdings at 12 Year Low — With the current market conditions, Bitcoin miners continue to slowly sell their holdings
- Miners have been selling more Bitcoin than they are producing, causing their holdings to decline
- For the first time since February 2010, the aggregate amount of Bitcoin held by all miners has reached 1.9M BTC
- While the daily percentage of volume attributed to miners is typically ~ 2% of all on-chain volume, they still hold ~ 10% of all circulating supply, making miners’ actions key to look out for when volatility returns to markets
Miners’ decreasing holdings may not be indicative of capitulation given how gradual this decline has been. While some have pointed out this as a sign that the bottom might not yet be in for Bitcoin, it is worth highlighting how in previous bear markets we did not see major miner selling activity at the bottom either.
Upcoming Webinar
Wednesday November 2 at 12pm (EST)
(Limited spots available) Sign up now
