BTCUSD: What Message is Bitcoin Price Volatility Sending?

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Bitcoin price (BTCUSD) has become boring. Consider this. Since May this year, the price has remained relatively stagnant. It has remained between $10,500 and $8897. As you can see in the chart below, there is nothing much to write about this price action.

Bitcoin trounced by other assets

Bitcoin price
Bitcoin price has outperformed traditional assets in the past five years

In the past five years, Bitcoin price has been among the best-performing asset in the world. It has gained by more than 3,000% compared to about 50% gain by the S&P 500 and the Dow Jones. It has also trounced gold too.

The same outperformance has continued in the past three months. The price has jumped by 36% compared to the S&P 500, Dow Jones, and gold that have gained by 16%, 13%, and 7%, respectively. However, this picture has changed in the past one month, when the traditional assets have trounced BTC.

This has happened even as the environment remains being accommodative for the crypto. Interest rates are at historic lows, dry powder has continued to rise, halving has happened, and more money has been printed in the past few months.

Meanwhile, more institutional investors have allocated most of their funds in Bitcoin. For example, on Friday, Grayscale, the giant money manager said that inflows into Bitcoin rose to $905 million in the second quarter. That was nearly double the $503 million that entered in the first quarter. The report said:

“The writing on the wall is clear. Smart money is buying bitcoin. They’re accumulating a scarce asset, and they’re doing it at historic levels. Bitcoin’s price will eventually move higher. And when it does, it will move much faster than bigger asset classes.”

Bitcoin price volatility drops

Meanwhile, Bitcoin price volatility has dropped significantly in the past few months. In most cases, this is usually a signal of calm before the storm. First, let us look at the Average True Range (ATR), which is a common measure of volatility.

As shown below, the ATR has dropped to the lowest level since June 2019. However, a look back shows that the last time the ATR dropped this much was in October 2018. The result was that Bitcoin price dropped from about $6,300 to less than $3,000.

Next, let us look at the Relative Volatility Index (RVI). As shown below, the RVI is at the lowest level since March this year. Still, the last time it dropped this much was in September last year. Shortly afterwards, Bitcoin price dropped from $11,000 to less than $7,000.

Finally, the same trend is visible when we use Historical Volatility, which is at the lowest level since February. As you can see, the Bitcoin price dropped sharply after the volatility reached this level. Therefore, all this means that BTCUSD is likely to experience a major price action in the near term.

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Bitcoin Price volatility has dropped

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