Calm Before The Storm? Bitcoin Volatility At Historically Low Levels

The 7-day volatility of Bitcoin has fallen to very low levels, according to data. Here’s what has historically happened following instances of such a trend.

Bitcoin Volatility has declined to 1.6% in the past week

The latest Weekly Report from Arcane Research shows that volatility has fallen to extremely low levels due to the sideways trend in BTC prices.

The “volatility” is an indicator that measures how the daily returns of Bitcoin have deviated from the average during a specific period.

Below is a chart showing the trends in BTC’s metric over the past year.

Bitcoin Volatility

 Source: Arcane Research's The Weekly Update - Week 39, 2022| Source: Arcane Research's The Weekly Update - Week 39, 2022

You can see that the volatility of 7 days Bitcoin has dropped over the past week, as you can see from the graph.

The metric’s value is now only 1.6%, a very low level that has only been seen a few times during the last twelve months. However, the 30-day volatility has remained steady at 3.4%.

The reason behind such low weekly values of the indicator is the sideways consolidation between the $19k and $20k levels that the crypto’s price has been stuck in lately.

According to the report, such low volatility 7 days have been accompanied by large spikes in the metric.

Because leverage builds quickly during such periods, this is why it happens. Due to the volatility of high leverage markets, large quantities can be liquidated quickly. This further increases the risk for price changes.

Since low volatility periods obviously don’t have any significant price spikes, leverage can go unflushed and thus pile up.

This buildup in the market is expected again, given that the 7-day volatility of Bitcoin has been extremely low lately. Indeed, the BTC-denominated perpetual forwards open interest is at an all time high, supporting the notion that the market may be overleveraged.

Bitcoin Open Interest

 Source: Arcane Research's The Weekly Update - Week 39, 2022| Source: Arcane Research's The Weekly Update - Week 39, 2022

BTC price

At the time of writing, Bitcoin’s price floats around $20.1k, up 3% in the last week. The crypto’s value has increased by 1% over the last month.

The chart below shows how the currency’s price has changed over the course of five days.

Bitcoin Price Chart

Since the spike a few days ago, the value of crypto is moving in a sideways direction. Source: TradingView - BTCUSD| Source: BTCUSD on TradingView
Featured Image from Kanchanara, Charts from Arcane Research

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