Bitcoin Moves #12: Volatility Ahead as ~$1B BTC Options Expire

Bitcoin Moves OKCoin cryptocurrency exchange Bitcoin report BTC price buy Bitcoin

Bitcoin Moves #12: Volatility Ahead as ~$1B BTC Options Expire

In the past week bitcoin has gained further attention as a store of value amid concerns about increasing inflation and fears that the US dollar will not remain the global reserve currency. Yet, bitcoin dropped 8.5% from a high of $11,177 on September 19th to the week’s low of $10,293 yesterday.

What’s coming next for the price of Bitcoin? Let’s have a look:

TL;DR:

  • Bitcoin traders can expect increased volatility this week as $1 billion in open-interest contracts expire on Friday, September 25th.
  • After the Federal Reserve announced policy changes that are likely to increase inflation, institutional investors look to bitcoin as a store of value.
  • MicroStrategy bought another $175 million worth of bitcoin on September 15th.
  • On September 20th, bitcoin miners “experienced one of the biggest upward mining difficulty adjustments in Bitcoin’s history.”
  • IntoTheBlock’s real time buy/sell signals appear bearish.

Here’s your market snapshot:

All prices are in USD and time zones are PT.

Volatility coming as ~$1 billion worth of bitcoin options expire

On Friday, September 25th, nearly $1 billion worth of bitcoin options will expire, potentially bringing added volatility to bitcoin markets.

Forbes reports that “bitcoin open interest, effectively traders betting on what they expect the price of bitcoin to be, has climbed to $1.9 billion — around triple what it was just a few months ago, according to data from bitcoin and crypto analytics provider Skew, with some 47% of existing contracts due to expire this coming Friday.”

Bitcoin volatility decreased over the summer to a low of 0.476 on July 26th, continuing a trend of decreasing volatility since March. Since then, the Bitcoin Volatility Index (BVI), shows an increase in volatility to a high of 1.796 on September 9th, based on a 30-day estimate. Today the BVI sits at 1.508.

With increased volatility on the horizon, IntoTheBlock’s real time buy/sell signals appear bearish.

Growing support for bitcoin amid increasing inflation concerns

On August 27th, Federal Reserve Chair Jerome Powell, gave a speech that outlined the Fed’s new policy towards inflation at the Jackson Hole Economic Policy Symposium. The change in policy provides a significantly increased level of flexibility for the level of inflation in the short term, while aiming for 2% in the long term. This means that instead of aiming for 2% inflation on an annual basis, the “Fed will aim to average 2% inflation over time, with the flexibility to well above or below that number in any one year,” as reported by Forbes. In a CNBC Squak Box interview, well known investor Stanley Druckenmiller predicted that inflation could rise between 5% and 10% over the next four to five years.

Today, Bloomberg reported that MicroStrategy Inc. Chief Executive Officer Michael Saylor “says the Federal Reserve’s recent relaxing of its inflation policy helped convince him to put the remainder of the enterprise-software maker’s cash into Bitcoin.” MicroStrategy, an enterprise analytics platform, bought $175 million worth of bitcoin on September 15th, adding to their $250 million bitcoin purchase in mid-August. Saylor explained that “we feel pretty confident that bitcoin is less risky than holding cash, less risky than holding gold.”

BTC-USD, 1day line, July 1 — Sept 22

DBS Chief Economist Taimur Baig told Coindesk on September 10th that “pre-pandemic demand was largely speculative.” … “But I think post-pandemic is beyond speculative. It’s more about, ‘This thing has fixed circulation, it will not be debased.’”

On September 15th, Ray Dalio, founder of Bridgewater Associates, explained in an interview with Bloomberg that he sees “a threat” to the US dollar maintaining its role as global reserve currency.

Bitcoin’s correlation to the S&P 500 (SPX) has increased 1% to 0.275.

Bitcoin miners experience significant difficulty adjustment as hashrate increases

On September 20th, bitcoin miners “experienced one of the biggest upward mining difficulty adjustments in [Bitcoin’s] history, as reported by Cointelegraph.

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Bitcoin hashrate, all-time via BTC.com

In a bitcoin halving blog post on May 5th, we explained what the difficulty adjustment is: it’s an adjustment in block difficulty, the time and effort required to add a block to the Bitcoin blockchain, that could change the dynamics of mining profitability. Block difficulty changes every two weeks, regulating a consistent ~10 minute rate at which blocks are added to the chain.

Cointelegraph notes in their article that there has been an immense increase in hashpower added to the bitcoin network, which appears “to indicate the excellent health of the Bitcoin network.” Since the beginning of 2020, the difficulty has increased from 13.8 trillion to 19.3 trillion, seen in the chart above.

As markets react to the upcoming federal election and concerns over the state of the economy, how do you think bitcoin will behave in the remaining months of 2020? Tell us on Twitter. We’ll be watching and sharing the news that you need to know each week.

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