Bitcoin: the quiet before the storm
Bitcoin is rightly considered a highly volatile instrument, and, in most cases, rare periods of prolonged consolidation are followed by significant price movements. Its price has been fluctuating around $20,000 for four months, which suggests increased volatility in the near future.
The chart below highlights periods with volatility below 28%. Coupled with the ongoing bearish trend and more than a week of stagnation, this marks imminent strong movement and a subsequent market reversal. At this stage, the pattern is just beginning to form, and the formation of a bear trap (a sharp drop before the bull run) can't be ruled out.
The approach to the price bottom is also indicated by the level of extreme stress among long-term holders.
At the same time, a number of indicators are showing an increased interest in Bitcoin. Thus, open interest in Bitcoin futures increased by 80% after the Terra project collapsed, reaching an all-time high of 633,000 BTC.
The use of leverage relative to Bitcoin reserves on crypto exchanges is also growing. This indicates both increased speculative demand (to maximise profit during low volatility, traders resort to increasing leverage) and a narrowing of liquidity. In the event of a strong price movement, there will be a wave of liquidations that will lead to even more volatility.
The US Federal Reserve has raised its key interest rate by 0.75% at its last three meetings. The regulator's next meeting will take place in 15 days, where there is a 96.5% probability that the interest rate will be raised by another 0.75%. However, the growing risk of a recession, brought on by monetary tightening, may cool the regulator's ardour.
Even a small retreat and a 0.5% rate hike could cause premature optimism in the markets, as investors will try to time the Fed's reversal in the coming year. At the same time, the regulator's retreat wouldn't necessarily mean that a favourable investment environment has arrived since the macroeconomic situation continues to deteriorate.
StormGain Analytics Team
(a cryptocurrency trading, exchange and storage platform)