Bitcoin Maintains Narrow Trading Range as Recovery Faces More Resistance
Bitcoin’s price held within a narrow range on Wednesday, as the latest corrective bounce failed to spur a bigger buying trend despite the presence of larger than normal volumes.
Stuck in a Range
The bitcoin price is currently trading at $3,673.66, little changed from 24 hours ago, according to aggregate data provided by CoinMarketCap. Over that stretch, BTC traded between $3,620 and $3,698.
At last check, bitcoin was trading hands at $3,614 on Bitstamp. The hourly momentum indicators show very little room for recovery in the short-term, with the RSI falling below 50.
Trading in BTC approached $5.6 billion on Wednesday, with BitMEX accounting for 14.3% of total daily transactions. The Hong Kong-based exchange announced this week that it is halting U.S. accounts amid regulatory scrutiny. It remains to be seen how whether this will have a noticeable impact on bitcoin derivatives trading. Relevant reading: As Race for Bitcoin ETF Heats Up, SEC Identifies Cryptocurrency as a Top Priority in 2019.
Bitcoin made a significant move higher at the beginning of the week, which averted a potentially bigger downfall that could have exposed the cryptocurrency to new lows. Immediate support is eyed at $3,550, the so-called “GTFO” level. The bulls must maintain this level to keep short-sellers at bay.
Bitcoin Sees Backwardation
As Hacked recently reported, bitcoin futures on the CBOE have entered backwardation, which means later contracts are trading consecutively lower than earlier expirations. Typically, futures markets operate in a contango state, meaning distant contracts trade incrementally higher than earlier expirations. In contango markets, futures prices are higher than the spot price, which means that speculators are willing to pay more now for a commodity at some point in the future than the actual price of that commodity when the contract matures.
Backwardation sometimes occurs when a market enters a periodic state of volatility. It’s not uncommon for energy futures or even CBOE VIX Volatility futures to enter backwardation at various points during the year.
In the case of bitcoin futures, volumes remain too low to have a significant impact on the overall market. While BTC circulation has spiked since the fourth quarter began, futures trading on CBOE and CME remain only a small drop in the bucket.
That being said, bitcoin has seen a sharp rise in volatility over the last two months, which eroded a period of unprecedented stability in digital currency trading. Bitcoin’s 30-day volatility index, courtesy of bitvol.info, is currently 4.57%. This figure conveys considerable uncertainty about the size of changes in bitcoin’s future value. The volatility index was as low as 1.02% at the start of November.
The following chart highlights bitcoin’s 30-day volatility index going back three months. As you can see, the November selloff upped the tempo of expected moves in bitcoin’s spot price.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
Featured image courtesy of Shutterstock.