- Bitcoin volatility is now at an all-time low, a move that has historically preceded large price impulses.
- BTC longs now apply pressure on shorts, increasing their buying power with $200 million in leveraged bets.
- While the derivatives increase longs' potential returns, it exposes shorts to higher losses if the price defies them.
- Notably, periods of extremely low volatility provide moves that are not to be faded.
Bitcoin (BTC) volatility has hit an all-time low, coming on the back of an extremely bored market, possibly due to the lack of proper impulse or catalyst. With extremely low volatility, money-making opportunities have shrunk, even for the most patient investors.
Also Read: Bitcoin and US stock market correlation shoots up: Is BTC at Fed’s mercy again?
Bitcoin volatility shrinks, longs use leveraged bets to drive activity
Bitcoin (BTC) continues to move within a narrow range, with the overall fluctuations between highs and lows not leaving enough room for traders to rake in significant profits. The ultra-low volatility has influenced longs to take leveraged bets on shorts, offering up to $200 million in debt in an attempt to maintain a balance between their contract prices and the current price of BTC.
Bitcoin Longs have paid shorts 200 million dollars in funding to take leveraged bets while volatility is at an all time low.
— lex (@trippingvols) August 15, 2023
brutal. pic.twitter.com/901HUHPYpp
To explain leveraged bets for the layperson, the longs have let the shorts use debts to increase their buying power, which is expected to fuel a price surge because of increased demand. Short traders are expected to buy more BTC for speculation with the additional funds.
If it plays out as the longs have planned it, then this group of traders has potential returns coming their way because their take profits could soon be triggered, and their pockets will be filled in the selloff.
On the other hand, short traders face unparalleled risks if the narrative plays in favor of long traders. This is because their positions (buys) could soon transform into outsized losses when Bitcoin price rises. To make matters worse, they would still need to return the $200 million debt, with possible interest and transaction fees, among other expenses.
Bitcoin volatility time series
Open Interest, funding rate FAQs
How does Open Interest affect cryptocurrency prices?
Higher Open Interest is associated with higher liquidity and new capital inflow to the market. This is considered the equivalent of increase in efficiency and the ongoing trend continues. When Open Interest decreases, it is considered a sign of liquidation in the market, investors are leaving and the overall demand for an asset is on a decline, fueling a bearish sentiment among investors.
How does Funding rate affect cryptocurrency prices?
Funding fees bridge the difference between spot prices and prices of futures contracts of an asset by increasing liquidation risks faced by traders. A consistently high and positive funding rate implies there is a bullish sentiment among market participants and there is an expectation of a price hike. A consistently negative funding rate for an asset implies a bearish sentiment, indicating that traders expect the cryptocurrency’s price to fall and a bearish trend reversal is likely to occur.
Anticipating Bitcoin's next big move with historical volatility patterns
Either way, based on the take-profit selloff that could play out for longs, or the fresh buys incoming as short traders exit their positions (buy), experts anticipate that a possible big move is underway for Bitcoin price. If history is enough to go by, then the expectation of a big move is accurate, considering the breakouts BTC indicated every time the volatility fell that low.
BTC volatility against price
However, there is always the chance that the turnout defies expectations, as it happened in 2018 when both Bitcoin volatility and price skyrocketed. In such a state, however, the market would be highly uncertain, and the price can change dramatically in either direction and within a short period.
Bitcoin liquidations
Data provided by CoinGlass shows that FUD on August 15 wiped out traders holding long positions, resulting in total losses of around $121 million. This was because of the liquidation of their holdings over the last 24 hours. This sent the crypto market capitalization down by $14 billion to $1.16 trillion at the time of writing.
This slump came on the back of Binance Exchange shutting down its regulated buy-and-sell cryptocurrency arm, Binance Connect.
Dear Biswappers,
— Biswap (@Biswap_Dex) August 15, 2023
The Biswap team keeps abreast of the latest DeFi news and aims to inform you right away.
After a thorough consideration, @binance has made a difficult decision to disable @Binance_Connect on 15 August due to its provider closing the supporting card payments… pic.twitter.com/HcooyLn4sg
While the impact was mainly felt among altcoins, BTC did not go unscathed, with almost $12 million worth of long positions liquidated.
BTC liquidations
Based on the chart above, almost $3 million worth of long positions were liquidated on Binance alone, meaning the exchange closed the leveraged positions because of a partial or total loss of the initial margin.
As traders reacted to the news, Bitcoin price soared to the $29,500 range before a quick pullback to $29,178 at the time of writing.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
Top 3 meme coins Dogecoin, Shiba Inu and Bonk: Report shows nearly 140 new meme token debuts
April recorded the addition of 138 new meme coins to CoinMarketCap. The actual number could be even higher as analyst Crypto Koryo notes that CoinMarketCap reportedly lists only 10% of all tokens.
XRP close to support at $0.50 as traders digest SEC vs. Ripple lawsuit proceedings
XRP is ranging below $0.53 on Thursday as investors continue to digest the recent developments in the legal battle between Ripple and the US Securities and Exchange Commission (SEC).
Fetch.ai Price Forecast: FET unlikely to recover, more downside possible Premium
Fetch.ai price performance in the first quarter was nothing short of magical. The market value of FET rose by 587% between February 5 and March 28, a climb that is now facing exhaustion and could lead to further downside moves.
Solana meme coins TREMP, BODEN rise after Donald Trump’s pro-crypto stance
A Solana-based meme coin Doland Tremp posted over 100% gains on Thursday, before pulling back to $0.6750. The price rally likely occurred after former US President Trump asked pro-crypto voters to vote for him and said his presidential campaign will accept crypto donations.
Bitcoin: Should you buy BTC here? Premium
Bitcoin (BTC) price shows signs of a potential reversal but lacks confirmation, which has divided the investor community into two – those who are buying the dips and those who are expecting a further correction.