- Following multiple days of sustained declines, Bitcoin’s realized volatility has risen sharply again.
- BTC could drop into the weekly imbalance between $52,985 and $59,005 before a move north.
- Bitcoin price recorded decent 20% pullbacks on multiple occasions during the bull market that started in 2023.
Bitcoin (BTC) price remained sub-$65K amid ongoing profit taking, instigated by soaring relative profitability. Meanwhile, reports show that the level of FOMO that had driven markets for the better part of the last several weeks since spot BTC exchange-traded funds (ETFs) hit the market on January 11, is now fading.
Also Read: BTC stuck under $65K ahead of FOMC
Bitcoin, altcoins, stablecoins FAQs
Bitcoin is the largest cryptocurrency by market capitalization, a virtual currency designed to serve as money. This form of payment cannot be controlled by any one person, group, or entity, which eliminates the need for third-party participation during financial transactions.
Altcoins are any cryptocurrency apart from Bitcoin, but some also regard Ethereum as a non-altcoin because it is from these two cryptocurrencies that forking happens. If this is true, then Litecoin is the first altcoin, forked from the Bitcoin protocol and, therefore, an “improved” version of it.
Stablecoins are cryptocurrencies designed to have a stable price, with their value backed by a reserve of the asset it represents. To achieve this, the value of any one stablecoin is pegged to a commodity or financial instrument, such as the US Dollar (USD), with its supply regulated by an algorithm or demand. The main goal of stablecoins is to provide an on/off-ramp for investors willing to trade and invest in cryptocurrencies. Stablecoins also allow investors to store value since cryptocurrencies, in general, are subject to volatility.
Bitcoin dominance is the ratio of Bitcoin's market capitalization to the total market capitalization of all cryptocurrencies combined. It provides a clear picture of Bitcoin’s interest among investors. A high BTC dominance typically happens before and during a bull run, in which investors resort to investing in relatively stable and high market capitalization cryptocurrency like Bitcoin. A drop in BTC dominance usually means that investors are moving their capital and/or profits to altcoins in a quest for higher returns, which usually triggers an explosion of altcoin rallies.
Next move for Bitcoin as FOMO sentiment from 2024 surge wanes
Bitcoin price has recorded a steady series of lower lows and lower highs since the second week of March, amid ongoing profit-booking from retail traders. The dump drew BTC market value closer to the weekly imbalance (Fair Value Gap or FVG) that extends from $52,985 to $59,005. This FVG represents inefficiency in the market that needs to be filled. Therefore, price tends to pull back to it.
Amidst ongoing profit-booking, and effectively a decline in Bitcoin price, options traders’ toolkit Greeks.live highlights, “BTC realized profit has risen sharply again,” with all major term implied volatility indicators recording yearly highs.
A sharp rise in realized volatility means there is an increased number of Bitcoin holders who are able to sell their coins at a profit compared to when they acquired them. This could lead to:
- Profit-taking by long-term holders after seeing a significant rise in profits
- Elevated levels of bullishness and increased buying activity
- Increased volatility with more traders looking to take profits, causing fluctuations in price as buy and sell orders are executed
Another observation is that market expectations for volatility has also soared, with data pointing to significantly higher prices of short-term put options. This hints at a potential downside risk in the market as traders anticipate or hedge against a potential decline in price within a short time frame.
The data also indicates dissipating FOMO (fear of missing out) relative to what had been seen earlier in the year when traders flocked to be part of what the recently launched spot BTC exchange-traded funds (ETFs) would achieve for Bitcoin price.
After several days of sustained declines, BTC realized volatility has risen sharply again, and all major term IVs have reached their highest levels in almost a year.
— Greeks.live (@GreeksLive) March 20, 2024
Market expectations for volatility are even higher than during the record highs, and looking at the market data,… pic.twitter.com/3Ndb2QnWUT
With multiple theories suggesting an extended fall, history adds to the list as Bitcoin price has dropped by around 20% on several occasions during the bull market that started in 2023.
Bitcoin price outlook amid increased realized profitability
Bitcoin price has plunged 17% since topping out at $73,777 and then bottoming out at $60,775. Standing 3% below the average 20% pullback, the weekly imbalance (FVG) bears an effective pull on BTC price to fill the inefficiency.
With this, Bitcoin price could extend the fall 6% from current levels to tag the upper boundary of the FVG at $59,005. In a dire case where this level fails to hold as support, BTC could drop to the midline of this zone at $56,152. A break and close below this level could see BTC provide another buying opportunity around the $50,000 psychological level.
Notice the DXY, which is deviating away from the downside in an attempted flight or take-off, marking another warning sign for BTC holders. In hindsight, every time this overlay comparison spikes to the upside (bullish), the result is almost always bearish for Bitcoin.
The Relative Strength Index (RSI) has also crossed below 70, which some could interpret as a sell signal. Its directional bias is coupled with the red histogram of the Awesome Oscillator (AO) showing falling momentum.
BTC/USDT 3-day chart
On the other hand, if the bulls come in at current levels, Bitcoin price could push north, likely reclaiming the $69,000 threshold. A close above this level would welcome a continuation rally that could see BTC reclaim its $73,777 all-time high. In a highly bullish case, BTC price could extend the gains to record a higher peak.
Also Read: Bitcoin price correction is harsh, but late bulls could still have an opportunity to buy the dip
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