Each month, Kraken publishes a report analyzing the volatility of Bitcoin. These reports are first shared with the exchange’s VIP clients before being shared publicly.
This report covers Bitcoin’s remarkable rise in July, as well as historical volatility trends and correlations to gold and the S&P500.
- A remarkable +14.5% rally between Monday, July 27 and Friday, July 31 resulted in bitcoin crossing $11,000 for the first time in nearly a year, more than $11B in volume traded, and an annualized volatility of 45%.
- Concerns over the state of the global economy and a shift towards safe haven assets resulted in bitcoin’s rolling 30-day correlation with gold flipping from a 10-month low of -0.66 on July 2 to a 1-year high of 0.93 on July 31.
- The OCC’s approval of U.S. nationally chartered banks providing crypto custody services, gold hitting an all-time high, and bitcoin’s dominance falling to a 1-year low set the stage for bitcoin’s +24% rally in July.
- August is historically the third most volatile month on record with a 9-year average annualized volatility of 88%; Kraken expects volatility to continue trending higher next month.
- Considering that on 12 separate occasions bitcoin’s annualized volatility bottomed between 15% – 30% before climbing, on average, to 140% and the fact that bitcoin set a 21-month low of 23% on July 24, volatility could exceed 100% as bitcoin rallies somewhere between +50% and +200% in the months ahead.
What to Watch?
- Since January 2012, on 12 separate occasions bitcoin’s annualized volatility has fallen between 15% and 30% after having been in a multi-month downtrend.
- Each and every time volatility has slumped into this “suppressed pocket” ranging between 15% – 30%, volatility has gone on to explode higher in an upwards mean reversion, resulting in the reemergence of market momentum and the surfacing of new, attractive trading opportunities.
- With bitcoin’s annualized volatility falling to a 21-month low of roughly 23% on July 24, it should come as no surprise that annualized volatility rallied into month-end and finished at 45%.
- Furthermore, history seems to suggest that the late-July jump in volatility is merely the start of what is likely to be a new uptrend.
Where to Next?
- Nearly 2.5 years later, bitcoin finally broke up and out of the pennant pattern formation in late-July – signaling the start of what many believe to be the next bull market cycle.
- Bitcoin not only broke through the pennant’s resistance, but also surpassed $10,500 and secured a higher-high in the macro trend.
- With bitcoin having only traded above $11,000 for 91 of its 3,636 days of trading (2.5% of its life), we anticipate volatility to build as bitcoin unlocks new levels of support & resistance and navigates through unchartered waters.