Bitcoin volatility has eased, but crypto futures show growing optimism
by James · April 25, 2023
Bitcoin trading has returned to the lull that characterized the market before US banks went into crisis last month and became a major upside catalyst for the crypto. Almost a week ago, bitcoin began a three-day descent below $30,000 after just a few days above the mark. Since then it has traded sideways. Meanwhile, bitcoin and ether volatility have fallen below early March levels, according to Kaiko. Even “implied volatility,” which uses options data to show the market’s forecast of a likely movement in an asset’s price, is moving lower. However, bitcoin is still holding on to a current resistance level that some chart analysts have seen, and market participants say investor optimism has survived despite the drop in volatility. “There is still bullish sentiment in bitcoin as the futures market is in contango,” said Michael Dunn, chief product officer at Bitnomial. This means that traders expect bitcoin prices to rise and may be willing to pay a premium for longer-dated futures contracts in anticipation of the higher prices. The opposite was the case at the end of 2022. Traders expected future prices to be worse than the current spot rates, said Luuk Strijers, chief commercial officer at crypto derivatives exchange Deribit. Dunn said spread prices have come off the highs of the past week, which could signal range-bound trading in the near term. The changes in the charts coincide with a shift in bitcoin’s narrative. The banking crisis opened many investors’ eyes to the range of bitcoin’s non-speculative use cases, particularly its potential as an alternative banking system. However, investors’ fears of a looming recession have come back into focus. As worries about US banks have eased and inflation has eased, some worry that the fallout from the US banking crisis could tip the economy into recession this year. In addition, inflation is still above where the Fed feels comfortable. The drop in bitcoin volatility also comes as the stock market’s “fear index,” the Cboe Volatility Index, has fallen to around 17 from 26 at the height of the banking crisis. New Catalysts for Volatility While the banking crisis briefly revived the crypto market, the tension between the crypto industry and US regulators has been a dark cloud over it. David Wells, CEO of Enclave Markets, said that’s what he’s looking for: more volatility in the short term. Even before the Securities and Exchange Commission’s regulatory crackdown on crypto companies began in January, the crypto industry has been frustrated by the agency’s lack of clarity on how startups should be regulated and its propensity to regulate through enforcement actions. In the last week, the exchanges Coinbase and Gemini have taken steps towards offshore expansion. “If the current trajectory continues with US banks having a hard time supporting crypto infrastructure companies, it will lead to more volatility because you still have somewhere around half of the market that is based in North America,” Wells said. “Liquidity is so concentrated, and with some of the other larger market players and institutions in the space dialing back on risk, it concentrates the liquidity risk even more to the biggest venues” like Coinbase, he added. BTC.CM= 1M mountain Bitcoin (BTC) below $30,000 Market participants were further discouraged last week when SEC Chairman Gary Gensler defended both his crackdown and his approach to the crypto industry. On Monday, Coinbase filed a legal challenge against the SEC, hoping to force it to publicly clarify whether it would allow the crypto industry to be regulated using existing SEC frameworks, after months of silence from the agency. Riyad Carey, a research analyst at Kaiko, said he’s looking a little further ahead for bitcoin’s next big driver — to the next halving, a year from now. “The next big crypto-specific catalyst on the horizon is probably the halving of bitcoin,” he said. “Releasing volatility…appears to be a reflection of the lack of crypto-specific catalysts in the near term. Ethereum’s upgrade went without any real fireworks, and we seem to have gotten a respite from collapsing crypto companies for now.”
