Analysts Predict Bitcoin Volatility Spike as Market Aligns Like a ‘Coiled Spring’

Cryptonews John Brightwater September 20, 2024

Analysts Predict Bitcoin Volatility Spike as Market Aligns Like a ‘Coiled Spring’

Summary
Analysts anticipate a potential surge in Bitcoin volatility following a notable increase in trading volume, attributed to the Federal Reserve’s cut in interest rates. Key indicators highlight the market’s current state as tense and ripe for price fluctuations, reminiscent of a coiled spring. Weak supply metrics, coupled with rising stablecoin levels, suggest that market conditions could soon lead to significant price movement in Bitcoin.

As Bitcoin’s (BTC) trading volume surged to $16 billion on September 18, prompted by the United States Federal Reserve’s announcement of a 50 basis point interest rate cut, analysts have observed potential indicators of heightened volatility in the cryptocurrency market. David Lawant, the head of research at FalconX, noted that this significant trading volume, paired with the liquidity dynamics observed over the past six months, suggests that the market is gearing up for substantial price fluctuations. Lawant pointed out that the current volume is approximately 30% above the average daily volume recorded in August, signaling that liquidity tends to strengthen during recovery phases in comparison to sell-off events. He articulated a sentiment echoed by Matt Hougan, Chief Investment Officer at Bitwise, who likened the liquidity environment to a “coiled spring,” indicating that it is ready to release pressure. Additionally, a report by Glassnode supported this perspective, stating that Bitcoin’s price behavior resembles that of a coiled spring, with the asset’s price remaining compressed within a narrowly defined range for the past six months. Historical comparisons reveal that only August 2023 and May 2016 featured a tighter 180-day price range than the one currently observed. Glassnode further emphasized that macroeconomic developments, such as the interest rate cut from the Fed, could relieve this built-up pressure and commonly lead to increased volatility in the market. Ki Young Ju, founder and CEO of CryptoQuant, complemented these observations by noting that institutional investors are not heavily shorting Bitcoin at present, reflecting an improvement in market conditions. He highlighted that net positions for CME futures have diminished by 75% since April, nearing levels recorded in early October of the same year. Moreover, Glassnode indicated that Bitcoin’s recent market activity has entered a phase of equilibrium, evidenced by muted inflows and outflows. The report stated that net realized profits and losses appear to be relatively balanced, and the overall realized profit and loss figures have decreased significantly following Bitcoin’s all-time high in March. Additionally, the “Hot Supply” of Bitcoin—defined as the amount of Bitcoin likely to be transferred—has dropped to a notably low level, comprising only 4.7% of the on-chain value, indicating a tightened supply landscape. Despite this, the increase in stablecoin supply, which currently stands at $160.4 billion, holds potential to revitalize market demand and purchasing power, contributing to a dynamic between inactivity and demand that could catalyze the projected volatility.

In recent months, Bitcoin has experienced varying degrees of volatility influenced by market liquidity and external financial factors such as interest rates. Analysts study trading volume and market dynamics to predict potential price fluctuations in cryptocurrencies. Currently, with the backdrop of the United States Federal Reserve’s monetary policies significantly impacting financial markets, analysts are closely monitoring Bitcoin as it exhibits characteristics resembling a ‘coiled spring’—a term suggesting the asset is poised for a price movement after a period of relative stagnation. Understanding the balance of market liquidity, institutional trading behaviors, and macroeconomic influences is crucial in assessing Bitcoin’s future volatility.

In summary, analysts predict a forthcoming spike in Bitcoin volatility, driven by a confluence of heightened trading volume, strong liquidity conditions, and macroeconomic factors such as the recent interest rate cut by the Federal Reserve. The market’s current state of equilibrium, coupled with suppressed supply metrics and the potential impact of rising stablecoin supply, suggests a buildup of pressure reminiscent of a coiled spring ready to release. As such, investors and analysts alike should be prepared for significant market movements in the near future.

Original Source: cryptoslate.com