Data shows that Bitcoin’s realized volatility metric has fallen to historically low levels. What usually happens after this pattern forms?
Bitcoin’s perceived volatility has fallen to extreme lows recently
On a publish On X, CryptoQuant author Axel Adler Jr discussed the latest trend occurring in Bitcoin’s realized volatility. O Realized Volatility here it refers to an indicator that basically tells us about how volatile a particular asset has been based on its price returns within a specified window.
When the value of this metric is high, it means that the asset in question suffered a large number of fluctuations during the period. On the other hand, the low indicator implies that the commodity’s price action was stale.
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Now, here is a chart showing the 1-week realized volatility trend for Bitcoin over the past few years:
As displayed in the chart above, Bitcoin’s 1-week realized volatility has fallen to quite low levels of around 7% recently. This is so extreme that only ten other cases in the last six years have seen the metric drop similarly.
This means that the recent cryptocurrency consolidation has been one of the tightest in its history; As for what this trend in the indicator could mean for the cryptocurrency, perhaps past patterns can provide some insight.
An inspection of the chart reveals that this stale asset price action often unfolded with a burst of strong volatility. The latest instance occurred just before the rally towards the new all-time high (ATH).
Given this pattern, it is possible that BTC’s recent consolidation could also lead to another sharp move for the cryptocurrency. Something to note, however, is that the volatility emerging from the Realized Volatility lows has historically gone either way, implying that the price movement emerging from this tight range could very well be a crash.
It remains to be seen how Bitcoin’s price will develop from here on out, given the historically stale action it witnessed last week.
In other news, as Axel pointed out in another publishthe recent movement of the bankrupt stock market Mount Gox meant that many indicators on the network showed false signals.
The analyst cited the Bitcoin Adjusted Spent Output Profit Ratio (aSOPR) chart as an example.
aSOPR monitors the net profit or loss made by investors across the network. As Mt. Gox BTC had been sitting in wallets for a long time, it is not surprising that its movement “realized” a large profit.
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Of course, this increase in the indicator is not really a sign of profit taking, so it is not a signal that would impact the market.
BTC Price
Bitcoin fell over the last day as its price dropped to $66,800.
Featured image by Dall-E, CryptoQuant.com, chart by TradingView.com