Assessing Bitcoin’s Baseline Demand Through Trading and Volatility
Bitcoin’s volatility has hit this year’s low point, and with it, trading volume. The relationship between volatility and trading volume is one that has been closely looked at in traditional financial markets helping assess when markets return to equilibrium.
Despite Bitcoin still showing higher volatility than all traditional asset classes, the current status over the past few months has left the cryptocurrency bound just below the psychological barrier of the $10,000 mark. The status-quo holding now for nearly 2 months has left pundits scratching their heads. But the data shows that there is still plentiful opportunity for astute traders.
Markets since 2017 have evolved as derivative volumes now dwarf spot markets. These leveraged products seemingly add more liquidity. And the traditional notion is held that with volatility increases trading volume.
ZUBR takes a deeper look at how Bitcoin’s volatility and trading volume has affected demand and supply markets since the cryptocurrency hit its all-time-high.
Key Takeaways:
• Bitcoin’s daily opportunity remains very high when considering the potential to both long and short. The cryptocurrency almost mirrors any advance or retreat every day.
• The majority of the time, Bitcoin will almost mimic the exact percentage increase with a percentage decrease on the very same day. In fact, this happens 25% of the time and coming in a range between 0–1% (i.e. if Bitcoin increases 10%, it will likely decrease between 9–11%).
• Despite Bitcoin’s volatility nearing 1% at the time of writing, the intraday arbitrage opportunity remains in the 2–3% realm.
• These statistics are constant since even 2017. The mirroring behaviour of Bitcoin of swings north and south highlights the very nature and character of Bitcoin as an opportunity to gain from both short and long on a daily basis should history be an indicating factor in traders strategies.
• Rolling volatility stands between 2 and 4% two-thirds of the year on average. Data analysis by ZUBR shows that the opportunities are still fairly large for the consistent traders choosing the right side at the right time.
• Volatility doesn’t necessarily mean higher trading volumes. In fact, the majority of trading volume on both derivative and spot markets happen when the difference between the “Opening price” and “Closing price” are under 1%.
• As far as the daily opportunity goes, the majority of the time traders are looking at a 4–5% arbitrage from low vs high based on Bitcoin’s 30-day rolling volatility of 2–3%.
• Higher volatility does not mean higher trading volume/liquidity. In fact, the majority of trading happens when the opportunity is in the 4–5% arbitrage range.
