Traders, Bitcoin’s Calmness Reflects HODLer-Domination.

Traders Insight, The 90-day realized volatility of Bitcoin has dropped to its lowest level since December 2020. This goes against the long-held belief that cryptocurrencies are more volatile than traditional market assets.

Traditional markets are becoming more volatile at the same time that Bitcoin’s volatility is melting down. (The 90-day realized volatility of Bitcoin). Since the beginning, cryptocurrencies like bitcoin (BTC) have been criticized for being too volatile compared to traditional markets and not being reliable as a way to buy and sell goods or store value.
A paper published in the American Economic Review says that bitcoin, which is often called a “risk asset,” has been very stable recently, even though almost every other traditional market asset, including U.S. government bonds, which are generally thought to be the safest, has been very volatile.

Since early July, the price of bitcoin has been stuck between $18,000 and $25,000. As a result, its annualized 90-day realized volatility, or historical volatility has dropped from 80% to a 21-month low of 21%. Laevitas, a company that keeps track of data, says that the cryptocurrency’s 90-day implied volatility, or expectations of price changes over the next three months, has dropped to its lowest level in four months, at 63.7%.

The Federal Reserve (Fed) is also determined to raise interest rates to control inflation. As a result, the ICE Bank of America Merrill Lynch U.S. bond market options volatility index jumped to 160 last week, which is the highest level since the crash caused by the coronavirus in March 2020.

One reason bitcoin is pretty calm is that most macro traders who care about Fed policy and traditional market volatility left the crypto market early this year. And “HODLers” now control most of the cryptocurrency market. These are investors who plan to keep BTC for a long time in the hopes that it will become digital gold and a medium of exchange.

“The more short-term macro investors leave the crypto market, the more pricing power they give to longer-term investors with possibly different investment theses,” Noelle Acheson, author of the Crypto is Macro Now newsletter, wrote to subscribers on Oct. 4.

After looking at the policies of the central bank and government as well as economic data from each country, macro traders put together a portfolio of different assets.

Advertisement

Acheson says that a lot of macro traders rushed into the crypto market after the March 2020 crash, when the Fed and other major central banks opened the floodgates for money. “They didn’t really care about being hard to seize or censor; they were more interested in the upside potential,” Acheson said. “Because crypto assets were seen as high-risk investments, they started to act like high-risk investments.”
And because these groups didn’t believe in bitcoin’s stated goals, they probably left the market when the Fed started to tighten credit.

In March, the Fed started raising rates. Bitcoin lost 56% of its value in the second quarter, while Wall Street’s main stock index, the S&P 500, lost 16%.

In the second quarter, the 90-day correlation coefficient between bitcoin and the S&P 500 went from 0.5 to 0.94. This may be a sign that macro traders are selling their crypto holdings because the stock market is becoming less risky. The 90-day correlation dropped to 0.44 last month and was near 0.7 at press time, which is still high but much lower than the high of 0.94 in the second quarter.

Acheson also said that the recent rise in correlation doesn’t necessarily mean that macro traders are taking over the crypto market again, because “almost all assets continue to be buffeted by macro and monetary uncertainty.”

This is clear from the fact that exchange-traded funds and exchange-traded products listed in Europe, the U.S., and Canada are not getting or giving away a lot of money. And if that wasn’t enough, on-chain data shows that people who are probably investing for the long term are still buying more. Most macro traders and institutions prefer to invest in bitcoin through ETFs and regulated cash-settled futures instead of buying bitcoin directly.

“In the meantime, more has been added. Over 65% of BTC hasn’t moved in over a year, which is the highest percentage ever “Acheson put words on paper.

For More Bitcoin News, Click Here.

Advertisement