Bitcoin is known as an extremely volatile asset. This reputation, however, does not live up to the reality anymore, as BTC volatility has been declining steadily, especially in the past year.
In fact, Bitcoin’s 5-day volatility hit its lowest this August, when it fell below that of the S&P500, tech stocks, and gold (Bloomberg).
Trading volumes are historically low, liquidity is drying up, and the market looks disinterested overall.
What could this mean for Bitcoin?
One view is that such a situation is the new norm. As an increasing number of institutions, known for their longer investment horizons, chose some sort of Bitcoin exposure, the share of speculators is set to drop, together with volatility. This opinion implies that the possibility of a spot Bitcoin ETF approval is already priced in.
An opposing point of view is that low volatility is the calm before the storm. The markets are waiting for a breakout, and any major news could lead to massive price swings to either side. This also implies that the spot ETF possibility is yet to have an impact on the price.
The media accident that happened this Monday gave reason to the latter. As CoinTelegraph, a major crypto news outlet, retweeted fake news about the SEC approving BlackRock’s Bitcoin ETF, BTC price shot up almost 10% in a matter of minutes.
The price fully corrected soon after the market players realized it was a mistake; however, it was too late for the owners of over $100 million in short positions that were liquidated.
Interestingly, after these swings, the price continued rising, settling around $28,400 at the time of writing.
Could CoinTelegraph’s blooper take Bitcoin out of its slumber? It might be too early to tell, but a deeper look at the current state of the market could provide us with greater insight.
Long-term holders’ domination
One of the most important reasons for the low liquidity is the low number of active market participants. According to Glassnode, an on-chain analytics firm, the current market is dominated by long-term holders whose share in the total Bitcoin supply reached an all-time high of 76% last month.
The wealth distribution cycle graph shows that new investors started to appear at the beginning of the year. However, they are still relatively few, which, combined with HODLers’ reluctance to sell, makes for a boring market.
Short-term holders’ capitulation
Glassnodes’ data shows that a super-majority of short-term holders now find themselves in a negative position, which is a sign of potential seller exhaustion.
In September, the company broke down their cost basis, revealing that BTC price was sitting at the edge of a cluster of supply dominated by short-term holders.
Such a market structure where most short-term holders experience increasing losses may lead to a potential capitulation within this group. This, in turn, could take Bitcoin price down.
Despite this alarming graph, however, we did not notice any significant downside movement in the last month.
Written by D.Center
