It has now been a month since the FTX affair rocked the crypto market, a fundamental black swan that has spread its full wingspan to create a black hole in the ecosystem’s trust. 30 days later, calm has returned, but beware, the historical volatility of Bitcoin (BTC) is close to a long-term low.
Institutional participation remains stable in the platform revision phase
D+30! It has now been 30 days and 20 trading sessions since the last bearish shock occurred in the cryptocurrency market. and during this period prices have stabilized in an astonishing manner. The downward shock took place over 2 sessions before giving way to the new theme of fundamental concern, the financial audit of the main crypto players.
Investors are therefore still giving the ecosystem a chance to demonstrate its ability to adapt to the auditing standards of traditional finance.. Cryptos have been considered an asset class in themselves since 2018/2020, but they have never been considered equal to other markets (stocks, bonds, credit, forex) due to lack of regulation/transparency.
The crypto market has entered a fundamentally new streak of its young existence, and it begins with proof of reservesthe first step before considering in the coming months an in-depth accounting audit of the sector’s world leaders.
Binance seems to be doing well in terms of volume of reserves and diversification, in any case this forces all platforms to play the game of this new transparency requirement that institutional investors are requesting.
The latter have also been patient for a month with a stabilization or even a (very) small increase in their exposure. To track total institutional participation in the crypto market, I recommend the asset under management (AUM) barometer of the world’s largest Bitcoin ETF, that of the issuer Proshares and its famous BITO (this is the product’s mnemonic code).
AUM peaked at nearly $1.5 billion and is now steady around $570 million. The end of the bear market will only be indicated by a bullish turn in institutional participation, at the current stage they are waiting to see.
Figure 1: Chart showing AUM for Proshares BITO ETF
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Note, the measurement of the historical volatility of Bitcoin comes on a support of extreme dimension
An almost technical certainty popped into my mind this week: the next delay in the crypto market will be before Christmas.
This shift will be several thousand dollars in size and will either be the final purge at $10,000 or the signal to end the bear market with a strong break of chartist resistance.
This belief, I hold it from the chartist analysis applied to the curve of the historical volatility at 7 days of the price of Bitcoin (see the graph below). Bitcoin’s volatility actually just broke its support at the end of October last year, this is a signal of the continuation of the downward trend in volatility, which has completely crashed since the downward shock of the beginning of November.
All-time low in BTC volatility is now in sight, a level that will create a strong volume bounce, with some past events like the 2018 drop from $6,000 to $3,000, the rise from $4,000 to $10,000 in 2019, or the rise from $10,000 to $70,000 in 2020 .
Bitcoin price will therefore make its technical choice over the next two weeks and the movement will be very impulsive..
Figure 2: 7-Day Historical Volatility in Weekly Bitcoin Price Data
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Sources: Figure 1: Ycharts.com Figure 2: TradingView
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