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Bitcoin's trading has become 'boring' — but that's not necessarily a bad thing

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Representations of cryptocurrency Bitcoin are seen in this illustration, August 10, 2022. REUTERS/Dado Ruvic/Illustration
Dado Ruvic | Reuters

Bitcoin's lack of volatility lately isn't a bad thing and could actually point to signs of a "bottoming out" in prices, analysts and investors told CNBC.

Digital currencies have fallen sharply since a scorching run in 2021 which saw bitcoin climb as high as $68,990. But for the past few months, bitcoin's price has bounced stubbornly around $20,000 in a sign that volatility in the market has settled.

Last week, the cryptocurrency's 20-day rolling volatility fell below that of the Nasdaq and S&P 500 indexes for the first time since 2020, according to data from crypto research firm Kaiko.

Stocks and cryptocurrencies are both down sharply this year as interest rate hikes by the U.S. Federal Reserve and a strengthening dollar weighed on the sector.

Bitcoin's correlation with stocks has increased over time as more institutional investors have invested in crypto.

But bitcoin's price has stabilized recently. And for some investors, that easing of volatility is a good sign.

"Bitcoin has essentially been range bound between 18-25K for 4 months now, which indicates consolidation and a potential bottoming out pattern, given we are seeing the Dollar index top out as well," Vijay Ayyar, head of international at crypto exchange Luno, told CNBC in emailed comments."

"In previous cases such as in 2015, we've seen BTC bottom when DXY has topped, so we could be seeing a very similar pattern play out here."

Antoni Trenchev, co-founder of crypto lender Nexo, said bitcoin's price stability was "a strong sign that the digital assets market has matured and is becoming less fragmented."

An end to crypto winter?

"Low volatility [in Nov. 2018] was following a large bitcoin bear market," Goldman's analysts wrote, adding that "crypto QT" (quantitative tightening) occurred as investors poured out of stablecoins like tether, reducing liquidity. The circulating supply of USD Coin — a stablecoin that's pegged to the U.S. dollar — has fallen $12 billion since June, while tether's circulating supply has dropped over $14 billion since May.

Selling pressure has slowed, too, as bitcoin miners reduced their sales of the cryptocurrency, suggesting the worst may be over for the mining space. Publicly-traded bitcoin miners sold 12,000 bitcoins in June and only around 3,000 in September, according to Goldman Sachs.

Wave Financial's Perruccio expects the second quarter of next year to be the time when crypto winter finally comes to an end.

"We'll have seen a lot more failures in the DeFi [decentralized finance] space, a lot of the smaller players, which is absolutely necessary for the industry to evolve," he added.

All eyes on the Fed

Source: https://www.cnbc.com/2022/10/31/bitcoin-volatility-has-eased-but-thats-not-a-bad-thing.html


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