The cryptocurrency market has been experiencing low volatility for the past two months, but does that mean investors should just sit and wait?
Cryptocurrency markets are well-known for their volatility, where large price swings help investors create or lose fortunes. Yet there are often periods of relative stability where the tight price action bores some while being an opportunity for others.
Since the beginning of the year, Bitcoin’s (BTC) price has soared by over 60%, climbing from around $18,000 to over $27,000 at publishing time. However, the cryptocurrency has been stuck in a narrow range for the past two months, fluctuating between $26,000 and $29,000. It has occasionally attempted to break out above $30,000 but also faced some dips to $25,500.
According to CCData, Bitcoin’s volatility has dropped to 48.2% this year from 62.8% last year and from 79% in 2021. The cryptocurrency’s average daily change so far this year has been steady, with gains of 1.68% and losses of 1.93%.
/1 Latest CCData insights reveal $BTC volatility has dipped to 48.2% in 2023, from 62.8% in 2022 & 79.0% in 2021.
Its 2023 trading range also shows more stability, with an average 1.68% increase & a 1.93% decrease. pic.twitter.com/y0zBMA3kpU
— CCData (@CCData_io) May 23, 2023
Investors have a number of options at their disposal to generate more during periods of low volatility, including simply lending their tokens out via decentralized finance (DeFi) protocols or through centralized exchanges. Other alternatives include staking and advanced strategies using derivatives like options and futures.
Given the highly volatile nature of the cryptocurrency sector, this tight trend is interesting. Similarly stable periods in the past have been followed by significant price movements, either to the upside or the downside, but stability doesn’t mean there aren’t strategies that can help boost investors’ returns.
Crypto traders are expecting low volatility
While the most often-used strategy during these periods is to just hodl tokens while waiting for green candles, there are numerous strategies that can be used during sideways markets, including some market-neutral approaches that allow investors to take advantage of these periods, especially if they suspect when they might end.
Speaking to Cointelegraph, David Duong, head of institutional research at Coinbase, noted that the tight price action in the cryptocurrency space was partly driven by a sharp United States dollar retracement, with many traders sitting on the sidelines “waiting for a clear trend to emerge.”
Duong added that “many digital assets are still trading within well-defined ranges,” stating:
“If we look at the options space, we have seen implied volatility soften to some of the weakest levels in recent memory. For example, the 1M ATM 30D [one-month at-the-money 30-day] implied volatility for both Bitcoin and Ether are now near 41% as of May 30, almost 10 volume points lower than they were one month ago.”
The Coinbase executive’s statement points to low market expectations of significant price swings for both Bitcoin and Ether (ETH). Duong reiterated Coinbase’s stance that it’s “constructive on Bitcoin and the wider crypto market over the next six to 12 months, based on our Fed and macro views.”
Ahmed Ismail, CEO and founder of crypto liquidity aggregator Fluid, told Cointelegraph that during these periods, range trading is a “particularly attractive strategy” that aims to “take advantage of price oscillations, and tight price action can provide more precise entry and exit points for range traders.”
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Ismail added that flat price action tends to “recede periods of extreme price moves triggered by big events” and noted traders are eyeing multiple potential catalysts, which include the potential collapse of regional U.S. banks and the Federal Reserve’s upcoming decision on short-term interest rates.
Becky Sarwate, head of communications and brand at cryptocurrency exchange CEX.io, pointed out that periods of “stablecoin-like activity can invite a reflective period for traders to reevaluate their approach or consider alternative pathways through the ecosystem.”
Sarwate added that Bitcoin has similarly consolidated and saw its volatility drop in January 2023 before breaking out, although she warned traders “should always be cautious to chase the memory of historical events,” concluding:
“While it can be tempting to look for familiar patterns, it’s important to remember that market conditions are always in flux and can not be relied upon to replicate.”
Konstantin Horejsi, chief product officer at cryptocurrency exchange Blocktrade, said that such tight price action affects short-term trading activity, but told Cointelegraph that those who “believe in the long-term value proposition of digital assets” are…
cointelegraph.com