Bitcoin: Is volatility on its way to the king coin?

Journalist

Posted: December 25, 2023

• Expectations of volatility around Bitcoin have been rising.
• Institutional investors have started taking increased long and short positions.

Bitcoin’s [BTC] recent rally has inspired hope amidst the large portion of the crypto market. However, there may be a large amount of uncertainty coming toward BTC soon.

Bumps in the road ahead

Charles Edwards, the founder of Capriole fund, noted that Bitcoin has experienced over 232 days without a 25%+ drawdown in the past 12 months. The last instance of this was over a decade ago in 2011.

This extended period of low downside volatility is atypical, as such dips typically occur every 2–3 months. Edwards also anticipated a return of volatility in the future.

It’s now been over 232 days since Bitcoin had a 25%+ drawdown in the prior 12 months. The last time this happened was more than a decade ago, in 2011!

The current low downside volatility period is NOT normal. These dips usually occur every 2-3 months.

Volatility will return. pic.twitter.com/tltHGBKXZK

— Charles Edwards (@caprioleio) December 24, 2023

Long-term holders may find the current trend appealing, as it aligns with a less volatile investment environment.

However, the impact on trading behavior could lead to shifts in risk perception, potentially reducing hedging activity among traders during periods of perceived lower risk. Traders may thus need to evolve their strategies.

The anticipation of the return of volatility suggested that market conditions may shift soon, prompting adjustments in both investor sentiment and trading strategies.

A difference in opinion

Over the past several months, Futures asset managers have significantly increased their positions in BTC Futures.

Concurrently, hedge funds have been actively accumulating short positions in BTC futures, with the total amount of these shorts equivalent to the long positions taken by asset managers.

As asset managers take substantial long positions, it reflects a bullish sentiment and confidence in the upward trajectory of Bitcoin prices.

On the other hand, the concurrent accumulation of short positions by hedge funds signals a bearish outlook, suggesting an anticipation of price declines.

This dynamic interaction between long and short positions introduces increased volatility and uncertainty in the Bitcoin market.

Read Bitcoin’s [BTC] Price Prediction 2023-24

The contrasting perspectives of asset managers and hedge funds may lead to heightened price fluctuations as these market participants navigate divergent expectations.

Source: The Block

At press time, BTC was trading at $43,659.02, with its price growing by 0.17% in the last 24 hours. The number of daily active addresses on the network had also grown during this period.

Source: Santiment