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 volatility report covers Bitcoin’s sideways swing in June, as well as historical volatility trends and correlations to gold and the S&P500.
Key Takeaways
- A lackluster market environment drove bitcoin’s annualized volatility to a 6-month low of 51% and a -31% MoM drop in trading volumes, marking the quietest month since February.
- A reversal in trend caused bitcoin’s correlation with the S&P500 and gold to flip from 0.13 to 0.52 and from 0.50 to -0.49, respectively, amid a global stock market recovery and increased confidence that economic conditions have bottomed.
- In June, bitcoin attracted considerable attention from the traditional financial industry: asset manager Wilshire Phoenix filed an application with the SEC to offer bitcoin to investors, J.P. Morgan claimed that bitcoin successfully passed its first stress test in March, and famed investor Jim Rogers claimed that “the [value of] virtual currencies represented by bitcoin will decline and eventually become zero.”
- Given June’s uneventful price action and bitcoin’s shift in correlation with the S&P500, market participants ought to pay close attention to CBOE’s Volatility Index (VIX) to better assess whether traditional financial markets will weigh on bitcoin’s market dynamics as participants shift focus to equities.
- With bitcoin hovering beneath the resistance of a multi-year pennant formation for more than 2 months and holding above its 50-week moving average, some believe bitcoin is on the brink of embarking on a new bull-market cycle in the month(s) ahead.
What to Watch?
- Historical price action and outstanding correlations suggest that market participants ought to pay close attention to CBOE’s Volatility Index (VIX), which represents the 30-day forward-looking market volatility based on the price of S&P500 index options.
- Since February, bitcoin’s price has exhibited an inverse relationship with the VIX as traditional financial markets continue to whipsaw. This indicates that as long as market volatility continues to dissipate and stocks grind higher, if not hold steady, bitcoin will remain well-positioned to react to idiosyncratic market dynamics.
- Notably, last month bitcoin’s annualized volatility fell below its 315-day moving average and touched the support of an 18-month uptrend in volatility. A break below support at 50% would indicate that bitcoin’s volatility is entering into a new trend.
Where to Next?
- With the apex of a 2.5-year-old pennant only a few quarters away, bitcoin will need to soon decide whether to break through resistance and embark on a new bull-market cycle or revisit support at roughly $6,000 – $7,000.
- Because bitcoin has been trending sideways for 2 months and remains a +10% jump short of breaking resistance, many market participants believe that bitcoin is set to move considerably higher. This belief is also predicated on the fact that bitcoin’s 50-week moving average continues to prove itself as ironclad support.
- Before bitcoin can confirm a successful breakout and invalidate what has been a multi-year macro downtrend, bitcoin will need to climb past $10,500 to set a higher-high and trigger an uptrend.
