Bitcoin volatility hit a three-year low, a harbinger of a bull market?

JOSEPH YOUNG, Cointelegraph

By Yin Yin Tang, Odaily Planet

Since early May, the price of Bitcoin has been stuck in a narrow range between $8,500 and $10,000. Bitcoin has held between $9,000 and $9,500 for most of the past month, with volatility falling to a three-year low.

Bitcoin volatility has dropped to levels not seen since 2017, according to encryption data provider Skew. Researchers on Skew said: 'Bitcoin realization volatility is at a three-year low, and Tesla is eating bitcoin lunch!'

Bitcoin's volatility is at its lowest level in three years. Source: Skew.com

Years of low volatility during the strong rally in shanzhai currency have led to expectations of sharp price swings. Chainlink, Tezos (XTZ) and Cardano (ADA) have outperformed BTC and ETH in recent weeks. For example, LINK hit a record high in the second week of July, even though the encryption market remains stagnant.

Traders widely expect bitcoin volatility to rise sharply on the back of increased demand for low-value cryptocurrencies. Skew  The data show a gradual increase in open interest on major bitcoin futures exchanges, such as Bybit.

Open interest on BitMEX and Bybit rose to $650m and $500m respectively, suggesting futures traders expect volatility soon. With various indicators pointing to decisive changes in the price of Bitcoin, four key macro indicators show an upward trend.

Many fundamentals point to bullish sentiment for bitcoin. Source: Glassnode

The bitcoin network hash rate hit a record high

According to Blockchain.com, the hash rate of bitcoin's blockchain network hit a new high of 125.99 EH/s on July 8, surpassing its all-time high in the first week of March, before bitcoin fell below $3,600 on Black Thursday.

After the block reward halved on May 11, bitcoin's hash rate rocketed to a new high. After halving, the miners produced less BTC and less revenue, but their costs remained the same. As a result, analysts expect the hash rate to decline over a relatively long period of time in 2020.

Indeed, after halving the hash rate, it dropped to 90.29 EH/s. But in less than two months, the hash rate has hit new highs again, suggesting that the industry is still healthy and that a death spiral is highly unlikely.

The bitcoin blockchain network has hit a record high hash rate. Source: Blockchain.com

There are also fears that a death spiral could occur when most of the miners in the bitcoin network stop digging altogether. In theory, a death spiral could occur if mining is largely unprofitable in the short term.

But miners have recovered quickly from the halving pressure, possibly because a bumper period in Sichuan, China, reduced the likelihood of a sudden sell-off, which could reduce the selling pressure on bitcoin.

Long, narrow swings in its history have caused bitcoin to rebound

According to charts published by Nunya Bizniz, a bitcoin trader, bitcoin prices have historically fluctuated in a narrow band for extended periods after halving, which in the past has caused them to rise sharply.

Bitcoin is in its 10th week of trading in a tight range. The narrow range for 2012 and 2016 reached six and 15 weeks, respectively. Both of these ranges have led to big gains over the past few months. Nunya Bizniz  "Bitcoin is Bitcoin. After half price, sideways price moves are the norm. Bitcoin is now in its 10th week of narrow trading range.

An extended narrow band is considered an optimistic trend as it sets the stage for a stronger rally. When BTC rebound in the short range, it is easy to have a large pullback.

Hash band buy signal confirmation

On July 13, Charles Edwards, Capriole's digital asset manager, said the much-anticipated Hash Ribbons buying signal had been confirmed. "This signal is especially special after half time," Wrote Edwards, who created the indicator, on Twitter. "It could be a long time before there's another. That's how a great bull market starts."

Hash Ribbons, designed to show trends in bitcoin hashing rates and the health of the bitcoin mining ecosystem by quantifying relative growth rates, are divided by one-month mean minus two-month mean.

The index finds bitcoin's low points by evaluating the hash to predict potential miners' surrender. The indicator is based on the theory that BTC bottoms out after miners sell off or after BTC hash rates reach low points. Both the record bitcoin hash rate and the confirmation of a hash band buy signal suggest that miners have already gone through a selling phase.

HODLing activity increased significantly

"HODLwave" chart created by cryptocurrency investor Willy Woo shows the growth of new demand for bitcoin. At the bottom of the market, HODLwave tends to grow as new money comes into the market. Woo explains the model on its website: "The upper profile represents supply (old unmoved COINS) and the lower profile represents new demand (newly moved new COINS). The combined view clearly shows that each bull market cycle brings new demand."

The "HODLwaves" indicator shows new capital flowing into the bitcoin market. Source: Woobull.com

Various data suggest that long-term bitcoin investors are increasingly holding the currency as new investors pour into the market. That suggests bitcoin may be in an accumulation phase, with existing and new investors anticipating a long bull market.

Alistair Milne& NBSP; chief investment officer, Altana Digital Money Fund; For joining, the increase in HODLing indicates a bullish trend for Bitcoin. Market analysis also, chain Glassnode chief technology officer Rafael Schultze - Kraft data based on the chain, agrees: "more than a year did not move the currency supply accounted for 62%. The BTC is profitable supply proportion is as high as 77%. Many investors can profit by cash, but they choose to HODL. How can you not call COINS?"

External variables

Glassnode researchers found that the external market forces appear to be slow the trend of the currency, as the company is responsible for the growth strategy of Liesl Eichholz points out: "the external market forces, such as systemic uncertainty and unknown affinity with the traditional market, may prevent the BTC at this stage, but the signal is still strong."

As Cointelegraph reported on July 15, technical indicators point to a rebound in U.S. stocks that is overheating. If the stock market falls, bitcoin could become increasingly vulnerable to a recent correction, given its recent correlation with stocks.

The external risk is that a potential pullback in US equities could lead to a reduction in asset risk appetite. But the combination of a record high hash rate, rising HODLing activity, hash band buying signals, and historical bitcoin price patterns makes many investors optimistic about the fate of Bitcoin in q4 2020.

Text link:https://cointelegraph.com

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