A recent analysis addressed the issue of BTC volatility and the similarities between BTC volatility trends from May 2020 to 2021 and May to July 2022.
Bitcoin struggles with low volatility as bulls and bears are in a stalemate.
Looking at both sides of the coin, the prospect of a bullish breakout is matched by the potential for a major breakdown.
We can all agree that Bitcoin’s price action has been a bit quiet lately. But what if its historical performance in contrast to current volatility levels could provide some insights into what to expect over the next 2 months?
Bitcoin’s performance over the past seven days has highlighted low volatility and a liquidity crunch. Recent data suggests that whales are feeling the pinch as they rely on liquidity provided by smaller accounts.
The above data reflects that the current market conditions are supported by low volatility. This brings us to the next important observation. According to a recent IntoTheBlock analysis, Bitcoin’s volatility levels as of May 18 are within a historically significant range.
The analysis also showed that the volatility gauge was below 40%. This time marks the eighth time in the past five years that it has been this low.
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An analysis of Bitcoin price action from May to July 2020, 2021, and 2022 reveals something noteworthy. During those three months in each of these years, volatility dropped, followed by a noteworthy rally. Given the current low volatility, the year so far has been somewhat similar.
Investor sentiment has also been on an overall downward trajectory over the past four weeks. But does this mean Bitcoin will see a bull run in the next eight weeks? The same IntoTheBlock analysis shows that low volatility below 40% lasts for about five weeks on average, and there have been three similar occasions when a 50% drop occurred.
If BTC were to indeed plunge 50% from current levels, it would drop to the low $13,500 range. Remember, the probability may be low but it is never zero.
There are many factors that determine the outcome of Bitcoin's price. For example, BTC trading volume remains bullish, which means that the market still has a certain degree of confidence. Its on-chain transaction volume has risen slightly in the past four days.
We know that the volume was primarily bullish initially, as Bitcoin’s market cap rose by $21 billion between May 12 and 18. A strong wave of selling pressure wiped out most of the gained market cap, suggesting that short-term profit-taking is still active.
One can only wait and see whether these conditions will further dampen sentiment and lead to another major crash, or trigger the next wave of accumulation.
