This Bitcoin indicator is flashing!
And it's only happened 2 times in its history. On both occasions, BTC rallied by over 775% in less than a year...
So, will it happen again?
Let's dive in 👇
And it's only happened 2 times in its history. On both occasions, BTC rallied by over 775% in less than a year...
So, will it happen again?
Let's dive in 👇
Firstly, this indicator was featured in a recent report on volatility by Fidelity Digital Assets.
To understand the indicator itself, we need a bit of a primer on BTC volatility.
It's often misunderstood and as a result - mispriced.
To understand the indicator itself, we need a bit of a primer on BTC volatility.
It's often misunderstood and as a result - mispriced.
When viewed in the context of many other large, listed tech stocks, Bitcoin's volatility isn't out of the norm.
In fact, BTC has exhibited lower volatility than 33 companies in the S&P 500.
In fact, BTC has exhibited lower volatility than 33 companies in the S&P 500.
And it's quite clear that this trend of declining volatility is likely to continue.
That's because historically, volatility decreases as an asset progresses from a nascent speculative one into a staple in portfolios.
Gold went through similar declines in volatility.
That's because historically, volatility decreases as an asset progresses from a nascent speculative one into a staple in portfolios.
Gold went through similar declines in volatility.
Volatility ≠ Bad.
It should be viewed in the context of *risk adjusted* returns.
BTC has had a higher Sharpe ratio than stocks & an even higher Sortino ratio (downside risk only).
Much of the BTC volatility has been to the upside.
It should be viewed in the context of *risk adjusted* returns.
BTC has had a higher Sharpe ratio than stocks & an even higher Sortino ratio (downside risk only).
Much of the BTC volatility has been to the upside.
Falling vol ≠ less interest
In fact, the historically low volatility levels is coming at a time when BTC market cap is reaching ATHs.
In 2023, price was up 150% whereas volatility was down 20%.
BTC was also half as volatile at $60k in 2024 as it was at $60k in 2021.
In fact, the historically low volatility levels is coming at a time when BTC market cap is reaching ATHs.
In 2023, price was up 150% whereas volatility was down 20%.
BTC was also half as volatile at $60k in 2024 as it was at $60k in 2021.
Historically low volatility can also be a precursor to potential upward price movements.
The below charts show historically low levels of volatility and the 1 year returns from that point.
But, why does this happen? 🤔
The below charts show historically low levels of volatility and the 1 year returns from that point.
But, why does this happen? 🤔
Low volatility has occurred at the end of long bear markets as all selling has been exhausted.
This is when investors are apathetic to the price & when many have sold & left the market all together.
"Seller energy" can be quantified with a simple yet unique metric.
This is when investors are apathetic to the price & when many have sold & left the market all together.
"Seller energy" can be quantified with a simple yet unique metric.
That's the ratio of % of addresses in profit to 1 year realised vol.
This places volatility in the context of the individual investor.
So, what does this ratio show us?
Historically, the beginning of bull markets has been marked when it was close to or above the 95th %ile
This places volatility in the context of the individual investor.
So, what does this ratio show us?
Historically, the beginning of bull markets has been marked when it was close to or above the 95th %ile
This is even better illuminated when seller energy is overlaid with the number of days spent below the All-time-high.
Long stretches of BTC below ATH are more likely to see seller energy breaching the 95th %ile.
But, there's something even more interesting than that.
Long stretches of BTC below ATH are more likely to see seller energy breaching the 95th %ile.
But, there's something even more interesting than that.
There have only been 2 times in Bitcoin's history where seller energy got to such an elevated level prior to reaching ATHs.
This was in 2013 & 2017.
These are termed a "Green Cross" & the 1 year and peak returns from these events were quite incredible.
This was in 2013 & 2017.
These are termed a "Green Cross" & the 1 year and peak returns from these events were quite incredible.
We had a Green Cross on the 4th of March.
Will history repeat itself?
Well of course, past performance isn't indicative of future returns - but it does rhyme.
If we do see more liquidity flood into the markets in Q4, this could coincide with the 1 year timeframe.
Will history repeat itself?
Well of course, past performance isn't indicative of future returns - but it does rhyme.
If we do see more liquidity flood into the markets in Q4, this could coincide with the 1 year timeframe.
TLDR: BTC volatility has been trending down and is near historical lows.
When viewed in conjunction with holder metrics, one can back out a rare indicator which is flashing GREEN 🟢
DYOR. NFA & all that 🫡
When viewed in conjunction with holder metrics, one can back out a rare indicator which is flashing GREEN 🟢
DYOR. NFA & all that 🫡
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