The latest edition of the Bitfinex Alpha report revealed that cryptocurrency traders are bracing themselves for “choppy waters” ahead due to bitcoin’s sudden plunge after a languid period.
On-chain data analyzed by researchers at crypto exchange Bitfinex showed a surge and flatline in implied and historical volatility metrics, suggesting that traders have adjusted their strategies in preparation for impending volatility over the next month at least.
Choppy Waters Ahead
Last week, bitcoin’s sudden plunge toward the $25,000 mark left markets reeling with over $1 billion in futures liquidations. The asset had enjoyed an almost serene period before the decline as traders sought the next catalyst to trigger a sharp move in the market. This was evident in bitcoin’s open interest indicator, which recorded a rapid spike in the days leading to the sudden slump.
The downward move was followed by a major open interest wipeout, considered one of the largest in the asset’s history. Roughly $3 billion in open interest was obliterated within a few hours after the crash. Bitfinex said it was one of the largest reductions in day-to-day open interest since December 2021, when BTC hit its all-time high of $69,000.
While the crypto community is speculating on the specific reason for bitcoin’s recent crash, on-chain data has shown notable movement in historical and implied volatility metrics, suggesting what should be expected in the next few weeks.
The former uses historical data to reflect the past movement of an asset price, while the latter is a forward-looking measure that shows the market’s expectations about the future volatility of an asset.
Bitcoin to See Wilder Price Swings
The current market scenario shows the implied volatility metric surging to 40%, a rising trend in bitcoin options open interest, and a stable historical volatility indicator. Bitfinex said implied volatility outpacing the historical metric indicates that traders foresee wilder price swings ahead.
“Historically, Bitcoin’s price had been somewhat predictable, but this change in HV pointed to a newfound turbulence. More interestingly, the subsequent plateauing or flatlining of HV suggests a market acceptance of this elevated volatility, hinting that traders have adjusted their strategies to this “new normal” of heightened price fluctuations,” the exchange said.
While the anticipation could be attributed to several factors, including macroeconomic shifts and regulatory changes, the underlying message remains clear: there are stormier seas ahead in the crypto market.