The past week has been relatively quiet for crypto, as bitcoin continues to trade sideways in the range of $28,500 and $30,000, while U.S. stocks refreshed their yearly highs and later tumbled.
Why does bitcoin’s price, which used to be known for its high volatility, seem to be stuck at around $30,000? ‘Unprecedented’ low volatility
The exchange’s volatility indexes for bitcoin and ether are trading at “unprecedentedly low levels”.
Such a low volatility could be due to a lack of conviction by investors but could also result from a lack of leverage in the system.
In 2020 and 2021, “leverage was easy in space and it was maybe overdone,”. The high amounts of leverage contributed to high volatility and price increase of bitcoin.
However, as several major crypto companies, such as FTX, Alameda Research, BlockFi, Celsius, Voyager and Genesis collapsed in 2022 and early 2023, many highly leveraged players were washed out of the industry.
We’re now at the other side of the pendulum where there’s really difficult to get any kind of loans or leverage in space. If you want to do it, it’s expensive. The interest rates are high. The collateral terms are super onerous.
Still, we can expect a return of leverage in the crypto space, when the Federal Reserve starts to cut interest rates again. We also expect some companies to come up with new ways to provide more efficient leverage for the industry.
Investors should expect a considerable upswing in volatility in the coming months, potentially driven by any progress in BlackRock BLK, +0.02%’s spot bitcoin ETF application and the upcoming bitcoin halving event, which is expected to happen in April or May 2024.
Bitcoin halving refers to a process where the block reward given to the crypto miners is cut in half after every 210,000 blocks mined, or about every four years. The crypto has historically seen price appreciation months before and after halving’s.
The volatility term structure for bitcoin is quite steep, while there is a continuing call skew, where bitcoin calls are trading at higher volatility than puts.
Crypto in a snap
Bitcoin BTCUSD, 0.32% lost 0.6% in the past seven days and was trading at around $29,166 on Thursday, according to CoinDesk data. Ether ETHUSD, 0.39% dropped 1.9% during the same period to around $1,835.
Berkeley Capital Forex