After being range-bound for weeks, bitcoin is finally showing signs of a nice upward movement spurred by a tailwind of technical and fundamental forces. The top cryptocurrency has strongly recaptured the $9,200 level and looks set to break even higher.
However, the asset’s realized volatility is nearing perilous levels. According to Skew on-chain data firm, the last time this indicator was at these levels was right before the infamous 2018 bear market. Does this mean a huge sell-off is on the horizon?
Bitcoin’s 10-Day Realized Volatility Is Dangerously Low
As bitcoin strives to find its rightful place in the world of finance, some potential investors have been shy of getting into the digital asset due to its inherent high volatility. While day traders are always eager to take advantage of this volatility, successful investors and cautious institutional money have been left on the sidelines.
Nonetheless, the volatility of the king of cryptocurrencies has been seeing a constant reduction in recent months. Per Skew’s research, BTC’s realized 10-day volatility is now at a 33-month low of 20% while the one-month realized volatility hovers at 35%.
Unfortunately, the analytics firm warns that things could soon turn ugly. In particular, Skew opined that the last time the BTC realized volatility reached 20 percent, a market meltdown ensued in November of 2018.
#bitcoin ten days realized volatility = 20%
Last time we reached that level, we had the great sell-off of November 2018 shortly after pic.twitter.com/7R6NZv6CII
— skew (@skewdotcom) July 6, 2020
Notably, the November 2018 wipeout took everyone by surprise. During the bull market of 2017 as BTC climbed to $20,000, no one could have predicted that the cryptocurrency would slump to the $3K region a few months later. If Skew’s analysis is anything to go by, BTC could soon see a repeat of the November 2018 sell-off as the realized volatility hits 20%.
Yet, Low Volatility Levels Support The HODLing Narrative
While Skew suggests that the 20% volatility is a cause for concern, it could well point to the low activity by bitcoin traders and the growing hodl culture.
Glassnode CTO Rafael Schultze-Kraft recently observed that only 27 percent of the total BTC supply has been moved this year as a result of active trading. But the most interesting fact is that 73 percent of all the bitcoins in existence has remained dormant since 2019.
Speaking of HODLing…
Only 27% of the circulating #Bitcoin supply has moved in 2020.
That’s right, 73% of all bitcoins in existence (~13.5M $BTC) have been dormant since 2019 and before.https://t.co/redga0JINT pic.twitter.com/F5y1Y6QfP0
— Rafael Schultze-Kraft (@n3ocortex) June 30, 2020
This generally shows that the BTC market is currently driven by a small portion of participants (27%) while a larger percentage of the holders remain optimistic about the future price of the asset – although most don’t think the flagship cryptocurrency has a chance of hitting $55,000 by the end of 2021.
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