Bitcoin has grown strongly in the last six weeks: According to market data, the leading crypto currency has grown by 70 percent. This makes it the world’s most powerful macro asset class.
Some are interpreting this rapid appreciation as a signal that BTC will soon correct. But according to a fund manager’s volatility analysis, the truly volatile part of this rally hasn’t even started.
Bitcoin has essentially gone parabolic in the past two months. But as you can see, this rally has not been interrupted by the sharp moves up and down from previous bull markets.
Bitazu Capital’s founding partner, Mohit Sorout, recently shared a chart that shows Bitcoin’s historical volatility index is currently near multi-year lows – even though the coin is up 70 percent in six weeks.
Chart of the price development of BTC in the last six weeks. Source: BTCUSD from TradingView
Assuming that volatility will eventually return to levels of previous market cycles, it is fair to say that the real exponential part of this rally has not yet begun.
Trader „Z“ writes in an article for FTX that the low volatility may be permanent due to movements in the cryptocurrency derivatives market.
He writes that, first, there has been a large outflow of BTC from the exchanges while few BTC are being sent to the exchanges from personal accounts, alleviating the selling pressures that could mark strong bearish trends in bull markets.
Z adds that the introduction of high frequency traders and other prop trading desks has resulted in subdued volatility:
“BitMEX also saw a flurry of prop trading desks invading the room trying to maximize spread trading and market making on inefficient order books. It used to be common for perpetual swap funding rates to be more than 5 basis points per 8-hour period and are now rarely above the 1 basis point baseline. Market makers had taken control of the market and let spreads be forgotten, which further dampened volatility. „
Not to mention, the loss of BitMEX market dominance has changed how many traders actually work in the room.