Expect a sharp move in the bitcoin price as volatility stops at record lows and sellers are “exhausted”

Expect a sharp move in the bitcoin price as volatility stops at record lows and sellers are “exhausted”

Bitcoin (BTC) lack of volatility has been the dominant point of discussion among traders over the past two weeks, with the current sideways trading in the $18,000 to $25,000 range in effect for 126 days. The majority of traders agree that a major price move is imminent, but what exactly do they base this thesis on?

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

Silent fluctuations and exhaustion of the seller

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

Bitcoin volatility for one week. Source: glassnode

Explore Bitcoin’s aSOPR, a metric that “measures the average realized profit/loss of coins spent on any given day” Offers:

“There is a significant divergence currently forming between price action and the aSOPR scale. As prices are trading sideways or declining, trapped losses are diminishing, indicating sellers are exhausted within the current price range.”

The modified SOPR rate for Bitcoin. Source: Glassnode

In addition to the divergence between the price and the adjusted SOPR, short-term bitcoin holders are approaching breakeven with short-term SOPR holders approaching 1.0.

This is important 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 the breakeven point.

If aSPOR tops above 1.0 and the level turns into support, this could be an early sign of a change in the emerging trend within the market.

Bitcoin short term SOPR holder. Source: Glassnode

Trading indicators are also at pivot points

Multiple technical analysis indicators are also flashing an indication of strong directional movement in the cards, a point noted by independent market analyst Big Smokey.

according to analyst:

Crypto research firm Delphi Digital recently released a similar view, quote “Squeeze” within the Guppy multiple moving average as a sign of “short-term momentum and upside potential as this group attempts to flip the longer-term moving averages.”

On October 10, Delphi Digital researchers pointed to the Bollinger Band Width Percentile (BBWP) scale and suggested the possibility of “a significant movement fermentation of BTC.” The researchers explained that, “Historically, BBWP readings above 90 or below 5 have identified key swing points.”

BTC Price and Bollinger Band Width Percentile. Source: Delphi Digital

Related: Bitcoin 2020 Reflects Before the Hack, But Analysts Are at odds on whether this time will be different

bitcoin derivatives case

Crypto derivatives markets are also flashing with multiple signals. Open interest in Bitcoin futures has reached an all-time high of 633,000 contracts, while trading volumes have fallen to a multi-year low of $24 billion per day. Glassnode notes that these levels were “last seen in December 2020, before the uptrend broke through the 2017 $20,000 cycle.”

Open interest on bitcoin futures. Source: glassnode

As one might expect during a bearish cycle, the liquidity, or the amount of money flowing in and out of the market, has decreased, strengthening reason to believe that an eventual rise in volatility can lead to a sharp price move.

While derivatives metrics such as open interest futures, long liquidations, and margined cash futures have been breaking records for several years, it is important to note that none of them provide absolute certainty about the direction of the market. It is difficult to determine whether the majority of market participants are long or short, and most analysts suggest that the increase in open interest reflects the hedging strategies in place.

One thing is for sure, on-chain data, derivatives data, and fundamental technical analysis indicators all point to an imminent explosive move in the bitcoin price.

The current prolonged period of low Bitcoin volatility is somewhat unusual, but a review of data provided by Glassnode and Delphi Digital can provide insight into what to expect when some on-chain metrics reach specific thresholds, and this should give investors some insight into How to position.