Bitcoin Moves #6: Volatility is Back

Bitcoin Moves #6: Volatility is Back

Bitcoin has been steadily increasing since the March plunge, and it seems like BTC will continue this bullish rally over the coming months. Macroeconomic factors highlight bitcoin’s technical strength, including economic uncertainty as the pandemic continues and a likely rise in inflation as the money supply increases at an unprecedented rate. 

However, it appears that in the short term, daily and weekly pull backs are likely to occur as investors take gains off the table and the MACD, a technical current price trend indicator, seems to gauge a low strength level of the daily price trend.

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Here’s your market snapshot: 

All prices are in USD and time zones are PT.

Bitcoin price movements 

  • Current Bitcoin price: $11,461 (11:35am PT), up ~2.7% from last week (USD $11,154)
  • 24hr high: $11,938
  • 24hr low: $11,285
  • 24hr change: 5.7%
  • 24hr BTC volume sits around $24 billion, up 9% from last week (USD $22 billion)
  • 30 day high / low: USD $12,045 / $9,088
  • 90 day high / low: USD $12,045 / $8,719

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BTC reaches $12k, now what?

At 2am PT today, BTC again flirted with USD $12,000, a notable price level that historically led to the 2017 bull run up to $20,000. BTC topped $12k over the weekend, bringing bitcoin’s market cap close to $220 billion and “putting its value on par with Netflix and AT&T,” as reported by Decrypt. The increase in price has also brought bitcoin’s market cap close to that of Bank of America, which sits at $237 billion after today’s gains. Bitcoin currently has a market cap of $212 billion.

Daniel Cawrey, Coindesk’s Markets Editor, noted yesterday that “BTC [was] above its 10-day and 50-day moving averages, a bullish signal for market technicians.” Cawrey’s article cites increased interest from institutional investors and a concern over US dollar devaluation as money continues to be printed by the Federal Reserve. 

Coindesk also shared news today that a Nasdaq-listed firm, MicroStrategy, which is valued at over 1.2 billion, poured “$250 million of its planned inflation-hedging funds into BTC.” The firm bought 21,454 bitcoins, stating that “this investment reflects our belief that bitcoin … is a dependable store of value and an attractive investment asset with more long-term appreciation potential than holding cash.” The firm’s CEO, Michael J. Saylor, noted that there are “forces working to weaken fiat currencies [including] COVID-19, global quantitative easing measures, political and economic uncertainty.” But that “the technical and qualitative aspects” of bitcoin give it strength. 

Bitcoin’s network value to transaction ratio (NVT) sits at 74.01, a change of 1.6% over last week. The NVT is a metric indicator that looks at whether BTC is undervalued or overvalued, comparing market cap to USD-based transaction volume. At this rate, it appears that the NVT is low, signaling a buy opportunity. Today, transaction volume sits at about 319k, down about 2.3% over this time last week.

FXStreet analysis suggests that “bitcoin’s path of least resistance is downwards based on the negative signals … from technical indicators like the MACD.” At the time of publishing, the MACD line (blue line below) was beginning to cross below the signal line (orange line below), appearing to indicate that the daily price trend is moving down.

In line with FXStreet’s short term outlook, Into the Block’s BTC buy signal is currently bearish, pointing to bearish on-chain metrics as well as bearish futures market momentum. 

Bitcoin volatility is back 

Over the past week, we’ve seen the price of BTC fluctuate more than 4% in a 24-hr period. On August 9th, BTC bottomed at $11,540, only to top out above one of bitcoin’s key resistance levels at $12,024. The following day showed a decrease of 2% from $11,982 to $11,689, only to retrace back to $11,936. Over the week, BTC is up 4%.

With these swings, the Bitcoin Volatility Index (BVI) is at 0.908%, an increase of 19% over last week.

Yesterday, Bloomberg reported on bitcoin’s price swings being the most “in about a year,” and that overall momentum is bullish, but a technical gauge suggests that on the weekly charts the asset could be overvalued. 

“Bitcoin’s surge presents a bullish development on a technical basis, with its 14-day Relative Strength Index above 70. Assets are considered overbought if the RSI exceeds that level.”

In the article, Mati Greenspan of Quantum Economics explained that “the level of $10,000 has represented a strong psychological barrier for Bitcoin for the last few years. Now that barrier is broken and there are no major levels of resistance on the graph until the all- time high at $20,000.”

Dan Koehler, Liquidity Manager at OKCoin, echoes Greenspan’s comments, noting that price action above $12,000 is uncharted territory. “We haven’t seen activity above that level since 2017, and from there it was a strong bull run that moved the price about $8,000 within the space of just two weeks.”

BTC Futures remain resilient

The same Bloomberg article noted that “bitcoin crashed almost $500 in a matter of minutes this morning after reaching that level, only to begin testing that high again.” The price drop was likely due to a CME futures gap, of liquidated long positions, which lay just below $11,700, according to Cointelegraph. The gap was filled from USD $11,980 to $11,470, with the ~$500 drop in price representing about a 4.4% decrease on the charts. Bitcoin quickly bounced back to $11,700. 

On August 6th, Cointelegraph reported that open interest was only increasing with a “record [of] $830M [in] CME Bitcoin futures open interest.” The article said that “top traders’ net exposure and institutional investors’ growing open interest in Bitcoin futures contracts show the market remains tilted toward bulls.” 

BTC-SPX correlation trending up

As bitcoin and the S&P both see gains in the market, the correlation between the two assets has increased 8.6% over the past week from 0.162 to 0.176. Since the start of August, correlation has increased 17%, according to Coin Metrics. While BTC-SPX correlation is up, overall it remains moderate.

In the July 14th edition of Bitcoin Moves, we asked if Bitcoin was correlated to the stock market and explained correlation. We noted that “determining the strength of the relationship between bitcoin and the S&P allows investors to assess whether asset price movements are connected and if there is causality between the two measures.” 

The S&P 500 has seen gains of 2% over the last week, likely on recent news of “the energy and industrials sectors [rising] more than 2.4%,” according to CNBC. “Monday’s session was the S&P 500’s seventh straight day of gains. The advance left the S&P 500 less than 1% away from a record high.” In the last month, the S&P has risen more than 5%.

In the news 

Soaring trade volumes in India 

In March, the Supreme Court of India lifted restrictions and made it possible for crypto exchanges to gain access to banking. Since then, crypto trading volumes have been increasing significantly.  

“Siddhartha Dutta, CEO of Marlin, a tech startup in Bangalore, said the recent spike in demand for bitcoin mirrors Indians’ reaction to demonetization in 2016. Back then some people learned the value of holding bitcoin, whose issuance is not controlled by any government, when the Indian government recalled a vast percentage of paper currency.” Read more on Coindesk.

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