Bitcoin Volatility Index Crashes to 22-Month Low

Bitcoin’s volatility index declined sharply over the weekend, as tepid trading volumes and an uncertain near-term outlook put a firm cap on price action.

BTC/USD Update

The bitcoin price hovered within a $40 range on Sunday, according to the latest data provided by Bitfinex. At the time of writing, bitcoin was trading hands at $6,498, where it was little changed compared to 24 hours ago.

Daily trade volumes are up slightly at $3.4 billion, according to CoinMarketCap. Daily turnover reached a low of around $3.1 billion on Saturday. Bithumb processed more than 9% of BTC trades on global exchanges. BitMEX, a popular derivatives platform, processed 6% of daily transactions.

The leading digital currency has established a firm price floor at $6,400; below that level, firm support is seen at $6,300 and $6,000.

At current values, bitcoin is capitalized at $112.3 billion, accounting for 53.7% of the entire market. Bitcoin’s dominance rate has held steady over the past two weeks.

New Lows in Volatility

Tepid trading volumes and narrower price ranges have contributed to newfound stability in the bitcoin market – a trend that has been observed for much of 2018. Since hitting a new bear market low of $5,755 in late June, bitcoin’s price has consistently traded above $6,400. Over the past 11 days, prices have fluctuated steadily between $6,300 and $6,500, with neither the bulls nor the bears initiating a major movement on either side of the spectrum.

Bitcoin’s 30-day volatility index fell to 1.42% on Saturday, the lowest since December 2016, according to bitvol.info. The index calculates volatility using the standard deviation of bitcoin’s daily open price over a specified period. The longer-term volatility indices (120 days and 252 days) are down to 2.64% and 3.56%, respectively.

The decline in bitcoin’s volatility is positively correlated with the launch of futures trading last December. While initial uptake was low, futures volumes rose sharply during the summer, with CME’s contract hitting a daily volume of 30,000 bitcoin equivalent in August.

Last week, Intercontinental Exchange announced that its cryptocurrency trading platform will offer physical settlement of bitcoin futures contracts beginning on Dec. 12. Through Bakkt, investors can execute block trades at a minimum of $0.01 per bitcoin.

It remains to be seen whether Bakkt can achieve its lofty objective of spearheading mainstream adoption of cryptocurrencies. However, a physically settled bitcoin futures contract will likely contribute to the market’s newfound stability.

Declining volatility also tells us that the 2018 bear market is likely to persist for much longer. According to the NVT Ratio, which divides bitcoin’s market cap by its average daily volume transmitted through the blockchain, we are currently in the middle of a long-term bear market. This view was recently echoed by Willy Woo, a notable cryptocurrency analysts.

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.

Author:
Chief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi