A recent report from Glassnode Insights titled “The Week On-Chain” highlights the historically low levels of volatility in the Bitcoin (BTC) market. The report emphasizes that the trading range for Bitcoin has been exceptionally narrow, with a mere 2.9% separation between the asset’s Bollinger Bands. This situation has only occurred twice before in Bitcoin’s history, in September 2016 and January 2023.
The report explains that periods of reduced volatility, combined with investor fatigue, often result in the movement of coins based on their cost close to the current price. This means that traders are likely making marginal profits or losses when they exit their positions. The report concludes that establishing a new price range is necessary to stimulate fresh spending and potentially contribute to an anticipated increase in volatility.
An interesting question arises from this analysis: is Bitcoin’s low volatility reflective of broader market conditions? The report suggests that the constrained range within which Bitcoin has traded is atypical and not limited to the cryptocurrency market. The 30-day volatility of the S&P 500 and oil price (WTI) is currently at its lowest level since November 2021. However, the DXY index has experienced a rise in volatility, and the 10-year Treasury yield has also increased from its 18-month low.
Glassnode highlights a significant concentration of short-term holders’ price distribution between $25,000 and $31,000. This pattern is reminiscent of similar periods during past bear market recoveries. However, the data shows that many of these investors are still holding positions with losses, creating short-term selling pressure. Additionally, the report mentions a noteworthy drop in short-term holder supply to a multi-year low, while the supply held by long-term holders has reached an all-time high.
The report also considers the potential impact of a global economic recession on Bitcoin’s price. Assuming that 10% of the BTC held by long-term investors at $47,000 or higher change their positions before Bitcoin surpasses $40,000, it could amount to about 6 and a half months of the current mining output. This highlights the importance of considering the potential impact of economic conditions beyond the scarcity of short-term holders.
In light of rising yields in equities and government and corporate borrowing costs, it is uncertain how Bitcoin holders will react. Higher yields could attract investors and lead to volatility, while rising costs might strain budgets and profitability. Real estate markets may also slow due to the impact on mortgage affordability. In such circumstances, central banks may implement fiscal policies to support economic activity, often resulting in upward inflation pressure.
Bitcoin’s emergence as a $50 billion asset class only occurred six years ago, making it unclear how holders will navigate the stress faced by traditional markets. The historically low volatility in the S&P 500, oil, and Bitcoin markets raises the question of whether this tranquility is preceding a period of turmoil. Will Bitcoin serve as a hedge against escalating inflation? Only time will provide the answers.
Disclaimer: This article is for general information purposes only and should not be taken as legal or investment advice. The views expressed are solely those of the author and do not necessarily reflect the views of Cointelegraph.