Kraken’s Crypto Volatility Report: November 2020

Each month, Kraken publishes a report analyzing the volatility of Bitcoin and other Crypto assets. These reports are first shared with the exchange’s VIP clients before being shared publicly.

The latest report covers a “A New Era” for Crypto in November, as well as historical volatility trends and correlations to gold and other traditional markets.

Key Takeaways

  • Favorable technicals, fundamentals, and outspoken support from well-established institutional investors pushed BTC to an all-time high of $19,850 in Nov. The climb was accompanied by a 34 percentage point increase in volatility to a reading of 70% and a historic $86B in trading volume.
  • Notwithstanding a remarkable +43% rally for BTC, many of the largest cryptoassets by market capitalization, such as ETH and XRP, outperformed BTC amid a surge in market-wide demand.
  • A renewed “risk-on” environment and rotation out of “risk-offassets caused global equities to outperform safe-haven assets in Nov.; said rotation was congruent with BTC’s rolling 90-day correlation turning strongly, positively correlated with risk assets and strongly, negatively correlated with safe-haven assets.
  • A year-to-date increase of +337% in the supply of stablecoins and outflow of BTC from exchanges suggests that organic spot BTC demand from “hodlers” is driving BTC’s appreciation. The movement of coins off exchanges also indicates that BTC’s immediately marketable supply continues to dry up as market participants move coins into cold storage.
  • Considering that BTC is in the midst of a new bull market cycle, hit an all-time high in Nov., and remains within striking distance of $20,000, some market participants are bracing for a correction. When looking as far back as 2015, one will find that BTC has, on average, corrected -33% over a 12 day period.

What’s Behind The Bitcoin Rally

  • Last month, we considered coins held in wallets with more than ₿100 and less than ₿100, concluded that “whales” (> ₿100) took advantage of the Oct. rally, and suggested that incremental whale accumulation could drive further BTC appreciation.
  • After 70,000 BTC left whale wallets in Oct., whales accumulated more than 56,000 BTC in Nov. and drove the month’s rally. Meanwhile, the “goldfish” (< ₿100) opted to take-profit as BTC rallied to an all-time high.
  • The whale’s accumulation in Nov. seems to suggest that said “smart money” still sees BTC as having incremental upside irrespective of its move to $20,000.
  • should BTC cross $20,000, keep an eye out on the number of bitcoins held by goldfish (< ₿100), which may signal another source of demand as we continue to track shifts between the two segments.

A History of Corrections

  • With the a new bull market in full swing, including a new all-time high, and bitcoin still trading within striking distance of $20,000, market participants have become wary of a correction.
  • The cause for concern is largely explained by BTC’s history of frequently correcting more than -30% during a bull market.
  • Over the past 5 years, BTC has, on average, retreated -33% over a 12 day period when filtering for bull market corrections in excess of -20%.
  • Turning to the extremes, BTC’s largest correction was -60%. The shortest correction occurred on Mar. 10, 2017 and the longest correction occurred over 45 days between Jul. 12 and Aug. 25, 2015.
  • Based on historical averages, a correction in excess of -30% is not taboo during bull runs.
Major BTCUSD corrections since 2015

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.