Summary:
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Crypto volatility falls further
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Is low volatility good or bad?
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Bitcoin finely poised in mid $6000s
Cryptocurrency markets have been uncharacteristically quiet of late with volatility falling to its lowest level in over a year. On a weekly rolling basis stock indices have been experiencing greater volatility which is an extremely rare occurrence indeed. However, this isn’t the first time that volatility has diminished and previously this has preceded large moves and we could be in the midst of the calm before a storm.
The volatility of cryptocurrencies has dropped further of late and is well below the range seen last year. Source: sifrdata.com
There’s two ways of looking at the decline in volatility at present and depending on the school of thought it can be seen as either positive or negative. The argument as to why low volatility is good goes along the lines that maybe the process of price discovery has become more efficient and therefore the market may be reaching an equilibrium. One of the key arguments against cryptocurrencies gaining traction as a method of payment was that they were far too volatile and therefore served as a poor store of value. Something that swings wildly by 5% or more on most days - as price did this time last year - isn’t attractive to use for a means of payment.
On the other hand however, a decline in volatility can be seen as negative. From a trading point of view, lower volatility means less opportunities. The daily ranges in the past couple of months have been so narrow that it is difficult to find many good setups. Having said that it is unlikely that this period of low volatility continues indefinitely and while the concept of price finding an equilibrium is nice in theory, it is highly unlikely in reality. If the market had settled around a much lower level then this could be the case but it seems improbable that the market will remain in the present range for too much longer.
Along these lines there are some pretty clear levels to keep an eye on and when these are broken out of (either higher or lower) then a large move could well ensue. Bitcoin had been in a falling downtrend going back to the start of the year but has recently broken above the trendline in what is a positive development. Furthermore November, often has positive seasonality for the market and is in fact the most bullish month on average over the past 5 years. The market made a significant low almost exactly a year ago around 5770 before embarking on a strong move higher.
Bitcoin bottomed out around 5770 this time last year before embarking on a strong run higher. Is another rally just around the corner? Source: xStation
As long as price doesn’t break below the support level around 5770 then there’s a chance of history repeating itself and another strong push higher. In terms of overhead resistance 6800 may be worth keeping an eye on with a break above there negating a series of lower highs and providing further positive developments for bulls. The 200 day SMA is currently just above there at 6989 and its not until price gets back above there that the longer term trend can be seen to have turned higher. Should this happen then 7350 and 8450 are possible.
Bitcoin is looking more positive after breaking above the falling trendline but bulls will want to see price get above 6800 and ideally the 200 day SMA (6989 at present) before getting too hopeful of a sustained push higher. Source: xStation
