Bitcoin: Past bear markets share this resemblance with BTC’s state of 2022

All good things must end as Glassnode found volatility has returned to Bitcoin in a new report [BTC] market last week. According to the blockchain analytics platform, the leading coin was trading during a period of historically low volatility at press time. Additionally, many on-chain and off-chain metrics point to an upcoming period of “elevated volatility” for the King Coin.

Prior to last week, the BTC market was characterized by an unusually low level of price volatility. This was in sharp contrast to the broader financial markets (equities, credit and FX) which were significantly unstable.

According to Glassnode, given the current market volatility, the price per BTC could move in any direction if volatility settles if historical precedents in bear markets hold.

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Brace yourself for the impact!

Glassnode also noted a significant divergence between BTC’s price action and its Adjusted Earnings-to-Profits Ratio (aSOPR). For context, when the metric is exactly one in an uptrend, it often acts as support as buyers tend to buy the dip. Conversely, when aSOPR equals one in a bear market, it acts as resistance as investors seek available exit liquidity.

A divergence price/aSOPR divergence was underway in the current market. If the price of BTC decreases, the volume of recorded losses would also decrease. This would indicate seller exhaustion within the current price range, Glassnode found.

As the weekly average of aSOPR approaches the break-even point of 1.0 from below, Glassnode opined:

“Volatility is becoming more likely to emerge, either as a breakout or further rejection.”

Source: Glassnode

In addition, Glassnode considered the aSOPR metric of the constituent investor cohorts. It examined the contributions of BTC Short-Term Holders (STHs) and Long-Term Holders (LTHs) and found a similarity. Glassnode noted that the current situation was identical to the BTC bear market bear market between 2015-2016 and 2018-2019.

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When the price/aSOPR divergence occurred in the 2015-2016 bear market, STH holders bought the buyers the pullback instead of the expected panic selling. However, when the same thing repeated itself in the 2018-2019 bear market, sellers outperformed buyers and many wanted to exit the market.

In the current market, Glassnode noticed that the STH-SOPR was once again approaching breakeven. This usually precedes a period of high volatility in the BTC market.

Source: Glassnode

For long-term holders of BTC, Glassnode noted that their issued profitability continued to “langer at historic lows.” According to the report, such a period of lows typically “occurs towards the bottoms of the bear market, with only 3.3% of trading days experiencing higher losses.”

Source: Glassnode

Options and Futures

Finally, the BTC options and futures markets have not been left out of the general market volatility. As for the options market, short-term implied volatility (IV) option pricing hit an all-time low of 48% last week.

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Likewise, trading volume in the futures market saw a decline to a multi-year low of $24 billion per day. This was last seen in December 2020, according to Glassnode.


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