- Bitcoin is struggling with low volatility as the bulls and bears are in a stalemate.
- A look at both sides of the coin with the prospects of a bullish breakout accompanied by a possible major crash.
We can all agree that Bitcoin’s price action has been a bit quiet lately. But what if historical performance in contrast to the current level of volatility can provide some insight into what to expect over the next 2 months?
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Bitcoin’s performance over the past seven days underscored low volatility coupled with a liquidity crunch. Recent data suggested that whales felt the heat because they feed on liquidity from smaller accounts.
Liquidity on both sides of #Bitcoin the price is so thin that whales must either split their market orders into smaller order sizes to minimize slippage or wait for pockets of liquidity before making a decision.
Turned the volume percentile filter all the way down to see how and… pic.twitter.com/dpXddCKgiX
— Material Indicators (@MI_Algos) May 16, 2023
The above data reflected current market conditions and was supported by low volatility. This brings us to the next important note. According to a recent IntoTheBlock analysis, Bitcoin volatility levels were within a historically significant range on May 18.
The analysis also found that the volatility measure was below 40%. This time it is the eighth time it has been this low in the past 5 years.
$BTC volatility is reaching historically significant lows.
📉60-day annualized volatility has fallen below 40% for the 8th time in the last 5 years
💰 Average $BTC vol remains below this level for 5 weeks and results in a price gain of 46%
⚠️However, 3 50% crashes followed… pic.twitter.com/TW8NozgIqE— IntoTheBlock (@intotheblock) May 18, 2023
Will summer bring bullish bliss or summon the big bad bear?
An analysis of Bitcoin’s price action between May and July 2020, 2021 and 2022 revealed something remarkable. There was a drop in volatility within those three months in each of those years, followed by a notable rally. Things have been somewhat similar so far this year given the currently low volatility.
Source: Sentiment
Investor sentiment has also generally been on a downward trajectory over the past four weeks. But does this mean that Bitcoin is about to experience a bullish explosion within the next 8 weeks? The same IntoTheBlock analysis found that low volatility below 40% lasts on average for about five weeks and then dropped by 50% on three similar occasions.
Read Bitcoin [BTC] price forecast 2023-24
If BTC is indeed facing a 50% crash from its current level, it would be as low as the $13,500 price range. Remember that the probability may be small, but never zero.
There is a lot that determines the price outcome of Bitcoin. For example, BTC still had bullish volumes, meaning there was still some confidence in the market. On-chain volume has increased slightly over the past four days.
Source: Sentiment
We know it was a mostly bullish volume initially, as Bitcoin’s market cap rose by a whopping $21 billion between May 12 and May 18. A strong wave of selling pressure wiped out a significant portion of that market cap gain, suggesting that near-term profit-taking is still active.
It remains to be seen whether these conditions will further dampen sentiment and trigger another major crash, or trigger the next wave of accumulation.
