Low Volatility Signals Potential Bull Run: Get Ready for Wild Price Fluctuations!

• Bitcoin’s realized volatility has been at a two-year low of 38%, making it the lowest since 2020.
• This low volatility may soon change as investors with ample capital supply begin to accumulate coins.
• This uptick in implied volatility with an extended period of low realized volatility is likely to be followed by wild price fluctuations.

The crypto market has been in a state of relative calm lately, with bitcoin stuck in the range of $16,000 to $18,000, amid lingering macroeconomic uncertainty and FTX contagion fears. However, this tranquility may soon be disrupted, as bitcoin’s realized volatility has fallen to its lowest level since the third quarter of 2020, just before the last bull run.

Realized volatility is a backwards-looking metric which measures the magnitude of daily price movements, irrespective of direction, over a specific period. Last week, Bitcoin’s annualized one-month realized volatility dropped to 38%, the lowest in two years. This drop in volatility has been accompanied by an increase in implied volatility, which is a forward-looking metric that reveals options traders‘ expectations for price turbulence over the coming week or month.

The low volatility and increased implied volatility has caused some analysts to caution investors to prepare for a sharp move soon. As highlighted in the Dec. 12 issue of Bitfinex’s Alpha report, “Calm waters do not last long in bitcoin, so be prepared for a sharp move here shortly.” Blockware’s weekly report also stated that, “Not counting the moment leading up to the FTX fallout, which had slightly higher volatility than what we have now, this is the lowest level for realized volatility since the third quarter of 2020, just before the last bull run. Prior to that instance, volatility was this low at the bottom of the 2018 bear market.”

The low volatility has also led to investors with ample capital supply beginning to accumulate coins, as they look to capitalize on the potential gains that may be achieved when the market volatility increases. As a result, this could be the start of another bull run, as the influx of capital begins to push the price of bitcoin higher.

Overall, the crypto market has been relatively calm lately, but this may not last for long. The recent drop in realized volatility, coupled with an increase in implied volatility, could be a sign of things to come, and investors should be prepared for a sharp move in the market in the coming days.