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Bitcoin Volatility Hits All-Time Lows Amid Market Apathy

techsm5

The weight of price-based capitulation has already been felt, while the real pain ahead is a game of waiting for the market to finally turn around.

The following is an excerpt from a recent edition of Bitcoin Magazine PRO, Bitcoin magazine premium markets newsletter. To be among the first to receive this information and other on-chain bitcoin market analysis straight to your inbox, Subscribe now.


As we head into 2023, we want to highlight the latest state of bitcoin volume and volatility after a recent wave of capitulation. The last time we addressed these dynamics was in “The Bitcoin Ghost Town” in October, where we pointed out that extremely low volume and a period of low volatility in the GBTC bitcoin price and options market were a worrying sign for the next lower stage. It happened in early November.

Fast forward and the declining volume and low volatility trends are back. While this could be a sign of another downside coming in the market, it more likely indicates a complacent, decimated market that few participants want to touch.

Even during the November 2021 capitulation period, there was a period of historically low volatility. Sometimes the greatest pain in the market can be felt when waiting for a clear change in trends. Bitcoin price is causing this pain because we have yet to see the type of burst in market volatility that has defined market pivots and major directional moves in the past.

Low SPX

Although there are many different ways to define, classify and estimate the volume of bitcoins in the market, they all show the same thing: September and November 2021 were the most active months of action. Since then, volume in the spot and perpetual futures markets has steadily declined.

Bitcoin Volume in Spot and Perpetual Futures Markets

Overall market depth and liquidity were also hit hard after the collapse of FTX and Alameda. Their destruction has led to a large liquidity hole, which has yet to be filled due to the lack of market makers currently in the space.

By far, bitcoin is still the most liquid market of any other cryptocurrency or “token”, but it is still relatively illiquid compared to other capital markets since the entire industry has been crushed over the past few months. . Lower market depth and liquidity means assets are subject to more volatile shocks, as relatively large single orders can have a greater impact on the market price.

Source: Kaiko Q4 Report
Source: Kaiko Q4 Report

Chain apathy

As expected in the current environment, we are also seeing more market complacency when looking at on-chain data. Although it continues to increase over time, the number of active addresses – unique addresses active as sender or receiver – has remained fairly stagnant over the past few months. The chart below highlights the 14-day moving average of active addresses falling below the moving average over the past year. In previous bullish market conditions, we have seen the growth of active addresses quite significantly outpacing the existing trend.

Moving averages of active bitcoin addresses

Since address data has its flaws, looking at Glassnode’s data for active entities shows us the same trend. Overall, the reversal in bear markets is the result of many factors, including growth in new users and an increase in on-chain activity.

Moving averages of active bitcoin entities

Bitcoin Transfer Volume Momentum
Bitcoin Seller Depletion Levels

In our July 11 statement “When will the bear market end?”, we argued that the weight of price-based capitulation had already been felt, while the real pain ahead was in the form of a surrender based on time.

“A look at previous bitcoin bear market cycles shows two distinct phases of capitulation:

“The first is a price-based capitulation, through a series of sell-offs and liquidations, as the asset drops 70-90% below previous all-time highs.

“The second phase, and the one that is talked about much less often, is the time-based capitulation, where the market finally begins to find a balance between supply and demand in a deep trough.” —Bitcoin Magazine PRO

We believe that time-based surrender is where we are today. While exchange rate pressures can certainly intensify in the near term – given the remaining macroeconomic headwinds – the conditions that look likely to persist in the short to medium term appear to be an extended choppy period with levels of extremely low volatility that leave both traders and HODLers wondering when volatility and exchange rate appreciation will return.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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