Bitcoin: Why there is scope for greater volatility

When the volatility in the cryptocurrency market is high enough to gain over 12% in price in 24 hours, there is a persistent fear of making mistakes. Bitcoin’s price chart has broken nearly all ceilings to hit the new ATH of $41780 on most top exchanges. While price discovery beyond the new ATH is yet to unravel, the network volatility is yet to match the 2013 or 2017 level based on data from Woobull charts.

When Bitcoin’s price increased in 2013, it registered a spike on the network momentum chart and a similar event was registered in 2017, before the bull run. The spike in volatility guided traders to open long and short positions in accordance with the market and close with accuracy. This is yet to be noted in 2021, the volatility is rising, but based on on-chain analysts’ predictions on the state of the Bitcoin market there is scope for greater volatility.

Bitcoin Network Momentum || Source: Woobull Charts

Though the volatility has not hit the level of the previous bull run, the leverage ratio on top exchanges has dropped considerably in the past 3 months. There aren’t as many long and short positions capitalizing on the market volatility on derivatives exchanges. Aggregated daily volume has hit $100 Billion on Binance, Deribit, Bakkt, and other derivatives exchanges based on data from Skew. However, a high number of long and short positions are being liquidated nearly every day due to the high volatility in the Bitcoin market.

BTC Futures – Aggregate Daily Volumes || Source: Skew

With $100 Billion in volume, Bitcoin futures are witnessing a higher flow of investment from whales, as there is very little to no selling by institutional investors. Disabling the red button could bail traders out on almost any long that they take at the current time, and according to popular trader Jacob Canfield on Twitter, this may not hold true in the case of short positions. 

Shorts require a more significant alignment of timing and skills, beside volatility and network momentum to book profits through short term tops, trend reversals, and accuracy in timing an exit. The current market is, therefore, a ‘Green Button’ only market.