Bitcoin’s volatility remains low in areas between $30,000 and $40,000, where it is most commonly traded. As a result of several factors, the volatility in the first cryptocurrency by market capital has decreased.
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Bitcoin (BTC) is trading at $40,500 as of the writing. There have been a 6% loss over the past 24 hours, and a profit of 1% in the past week.
QCP Capital, an investment firm, believes Bitcoin trades in a greater range since it gained control of the region around its current levels. The firm claims that there are 2 main reasons behind BTC’s recent price action.
There are expectations for Bitcoin and Ethereum to revisit their critical support of $30,000 and $2,500. This is in addition to the U.S Federal Reserve (FED), hinting towards an aggressive monetary strategy. These expectations were generated by former BitMEX CEO Arthur Hayes’s latest post, “The Q Trap”.
In the options markets, traders are preparing for a potential drop as QCP Capital records a “massive selling of May and June calls, causing BTC and ETH risk reversal”. They dropped to negative 6% and negative 10%.
In contrast, there has been an increase in demand for ETH put and BTC. Also, it appears that traders may be buying puts (sell) options in order to protect themselves from the imminent crash. They can benefit from a crash in the market price.
The biggest increase in put call demand has been seen for Ethereum. QCP Capital attributed it to the delay of “The Merge”. The event is set to combine Ethereum’s execution layer with its consensus layer and make ETH 2.0 fully operational.
Stablecoin Craze Helps Bitcoin Reach Bottom
Bitcoin’s recent price action characterized by low volatility could also be the result of the popularization of algorithmic stablecoins, QCP Capital believes. These digital assets have been in the crypto space for many years, but Terra’s UST managed to give them new life.
Users are looking to maximize the Anchor Protocol’s annual percentage yield of 19% (APY) and increase their demand for UST. Other projects have begun imitating this model creating what the trading firm called a “soft floor in the market”. QCP Capital was added to:
We mentioned in a previous post that the precedent set by Luna Foundation Guard (LFG) would spread and that has happened quickly with a wave of announcements from FRAX, NEAR and TRON (…). These algo stables, similar to LFG buying BTC and AVAX in BTC, will also build their treasuries with major coins and support the market through their purchasing.
Short-term market relief could lead to long-term stress. According to the trading company, these digital assets may pose a risk to the sector.
The possibility of a market de-pegged could be increased if the stablecoin management entities buy BTC or ETH in order to keep their assets pegged. The entities that manage stablecoins will try to preserve the pegged if they become volatile.
QCP Capital, along with others, are concerned about the sustainability of algorithmic stablecoins in the long term. UST, Terra’s native stablecoins, has been battle-tested, but many wonder if it will be able to keep its users with the rising competition.
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Bitcoin appears to be poised to stay rangebound as algo stablecoins increase in popularity and expectations for a May/June market crash. Short-term price movements to the downside are possible. According to Material Indicators, BTC’s price will seek to take the liquidity of around $37,000.
#FireChartsIs showing $100M #bitcoinYou can bid liquidity from here to the range of $37.5k-$37.5k. We expect it to fill, but we’ll be watching and waiting to see what happens. #BTCUSDTLiquidity moves towards the active buy area or to the order resting on it @binance order book.https://t.co/26BLOFwenL pic.twitter.com/NdAGc48yfY
— Material Indicators (@MI_Algos) April 22, 2022