Markets Show Some Life

Bitcoin’s Volatility Hits 17-Month Low

The crypto markets started this week positive with a nice bump of around 5 billion overall.

What seems to be one of the most discussed aspects of this market is simply how stable Bitcoin is.

Over the past three days it has had a delta of less than $100, which is quite shocking for an asset we’re used to seeing move $1000 in a week.

Ultimately it will break out of this stability and move in ways we’re accustomed to. Some pundits have gone so far as to say this stability indicates that market manipulation has taken a backseat, but I’m not so naive to claim that. The market will always be manipulated. Even in traditional markets, we see manipulation, even if it’s not as pervasive in an unregulated market like crypto.

What cannot be disputed is that Bitcoin is at a 17-Month low for volatility. This is a maturing market and volatility is expected to decline over time. This indicates that the market has established itself. We’ll continue to see this trend over time. With more derivatives, more ways of trading, more arbitrage, more hedging, and important more participants, we’ll continue to see a macro trend of less volatility.

Now, related to our present situation, some will point out that a combination of an all-time-low of interest in the market, low volume, and low volatility all point to one thing: the sellers have finished selling and this is the “bottom”.

That’s a reasonable conclusion, but we’ve only recently hit this level.

It could very well be that we see a breakout to the downside. What then?

After all, people have been calling the bottom since this bear trend started. Eventually, someone is going to nail the call, but these are the same people that have been wrong 99 times in a row.

I think it’s a better strategy to take solace in this low-volatility environment and plan for what the market could do next without trying to call a bottom. Remember that if enough people think something is “inevitable”, then the market is quite capable of reminding them who’s in charge.

We’ve seen sentiment improve ever since we recovered from the August selloff, and it could very well be that the market is too hopeful for a recovery at this moment. We’re a month away from Bakkt launching which will likely have less of an initial impact than people are expecting.

We’re also expecting a resolution of the Bitcoin ETF speculation sometime in the next 3.5 months. Of course, that won’t be the end of it, even if it’s denied, but it will certainly challenge some preconceived notions that seem built into the market at this point.

Whatever the case, it’s apparent that the “mania” phase has cooled off and we now have the most rational market we’ve seen in over a year.

That’s likely very good for attracting the big players to the space. Stable growth is much more appealing to institutional investors and governments looking to work with the space.  

A Fundstrat survey of 25 institutional investors showed that 54% respondents believed that Bitcoin has bottomed out and are optimistic about future price action.

This revelation comes a week after a Bloomberg report showing that the majority of $100,000+ OTC crypto transactions are now performed by institutional investors, instead of retail investors. Institutional interest in the space is increasing, and with the financial infrastructure continuing to evolve, I don’t see them sitting on the sidelines for much longer.

The most interesting part of the Fundstrat survey is the spread between bearish retail traders and bullish institutions — bear markets take their toll on retail traders far more than institutional investors.

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Defensive Actions for the next trading day: 

• None.