Sharp Bitcoin Price Movement Expected As Volatility Hangs At Record Lows And Sellers Are ‘Exhausted’

Bitcoin’s (BTC) lack of volatility has been the dominant talking point among traders for the past two weeks, and the current sideways trade within the $18,000 to $25,000 range has been in place for 126 days. A majority of traders agree that a significant price move is imminent, but what exactly do they base this thesis on?

Let’s take a look at three data points that predict a spike in Bitcoin volatility.

Mitigated volatility and seller fatigue

According to Glassnode research, “the Bitcoin market is poised for volatility,” with on- and off-chain data flashing multiple signals. The researchers note that 1-week realized volatility has fallen to 28%, a level usually followed by a sharp price movement.

Exploration of Bitcoin’s aSOPR, a metric that “measures an average realized win/loss multiple for used coins on a given day” shows:

“A large divergence is currently forming between price action and the aSOPR calculation. As prices trade sideways or decline, the extent of losses locked in is reduced, indicating an exhaustion of sellers within the current price range.”

In addition to the divergence between the price and the adjusted SOPR, short-term Bitcoin holders approach their breakeven level when the short-term holder SOPR approaches 1.0.

This is significant because a reading of 1.0 during a bear market has historically acted as a resistance level and there is a tendency for traders to exit their positions near breakeven.

If aSPOR were to break above 1.0 and turn the level to support, it could be an early sign of a new trend change in the market.

Trading indicators are also at pivot points

Several technical analysis indicators are also flashing a signal that a strong directional move is in the cards, a point noted by independent market analyst Big Smokey.

according to analyst:

Bitcoin price range, SuperGuppy and Bollinger Bands are getting really tight. ETH looks the same. You know what that means. pic.twitter.com/e7s6ScG7jz

— Big Smokey (@big_smokey1) 18 October 2022

Crypto research firm Delphi Digital recently issued a similar outlook, citing “compression” within the Guppy Multiple Moving Average as a sign of “short-term momentum and the potential for a rally as this cohort attempts to reverse the longer-term moving averages.”

On October 10, researchers from Delphi Digital referenced the Bollinger Band Width Percentile (BBWP) metric and suggested the possibility of “a big move for BTC.” The researchers explained that “historically, BBWP readings above 90 or below 5 have marked major turning points.”

Related: Bitcoin Mirrors 2020 Pre-Breakout, But Analysts Differ If This Time Is Different

The State of Bitcoin Derivatives

Crypto derivatives markets are also flashing several signals. Open interest for bitcoin futures has hit a record high of 633,000 contracts, while trading volume has fallen to a multi-year low of $24 billion daily. Glassnode notes that these levels were “last seen in December 2020, before the bull cycle had broken through the 2017 cycle $20K ATH.”

As would be expected during a bear cycle, liquidity, or the amount of money flowing in and out of the market, has decreased, reinforcing the reason to believe that any increase in volatility could result in a sharp price move.

While derivative calculations such as futures open interest, long liquidations and coin-margined futures open interest are breaking multi-year records, it is important to note that none of them provide absolute certainty about market direction. It is difficult to determine whether a majority of market participants are positioned long or short, and most analysts would suggest that the increase in open interest reflects hedging strategies in play.

One thing that is certain is that chain data, derivative data and fundamental technical analysis indicators are all pointing towards an imminent explosive move in the Bitcoin price.

Bitcoin’s current prolonged period of low volatility is somewhat unusual, but reviewing the data presented by glassnode and Delphi Digital can provide valuable insight into what to expect when certain on-chain metrics hit specific thresholds, and this should give investors some ideas on how they must position.