Is Bitcoin’s record-low volatility and decline in short-term holders a bull market signal?

Newest Report Titled “The Week on Chain,” Glassnode Insights highlights that Bitcoin (BTC) volatility has reached an all-time low. This resulted in a gap between the asset’s Bollinger Bands of just 2.9%, indicating an unusually tight trading range.

This has only happened twice in Bitcoin’s history: once in September 2016, when BTC was trading near $604, and again in January 2023, when the asset’s value stabilized at $16,800.

As stated in the report, periods of reduced volatility combined with investor fatigue have driven tokens to move based on costs close to current prices. This means that a trader may have a marginal profit or loss when they exit. The report concluded that establishing a new price range was necessary to stimulate new spending, which could lead to increased volatility in expectations.

Is Bitcoin’s Low Volatility a Reflection of the Broader Market?

The limited range in which Bitcoin has traded — specifically, $29,050 to $29,775 over the past three weeks — is atypical and doesn’t require advanced mathematical analysis to understand. This results in a 30-day annualized volatility of 17%. The key question is whether this trend is limited to cryptocurrencies, or whether it also exists in traditional markets, including stocks, oil, bonds and currencies.

Note that the S&P 500 and oil price (WTI) 30-day volatility is currently at its lowest level since November 2021. Interestingly, this trend has not been followed by the DXY index, which rose to 8% from 6% in May 2023. Also, the 10-year Treasury yield has recently risen from an 18-month low of around 10% to the current 16 %. These trends may affect the decline in Bitcoin volatility.

According to data from Glassnode, the price distribution for short-term holders is mainly concentrated between $25,000 and $31,000. The pattern is reminiscent of similar times during past bear market recoveries. However, many of these investors still held loss-making positions, creating short-term selling pressure, data showed.

Additionally, the analyst firm highlighted a significant drop in the supply of short-term holders to a multi-year low of 2.56 million BTC. On the other hand, as mentioned in the report, the Bitcoin supply held by long-term holders has reached an all-time high of 14.6 million BTC.

Assuming a relatively optimistic scenario, only 10% of the 1.77 million BTC held by long-term investors at $47,000 or higher changed positions before Bitcoin broke through $40,000, which equates to about 6.5 months of current mining output time. This illustrates the importance of not ignoring the potential impact of a global recession on the price of Bitcoin other than short-term holders becoming scarce.

This assumption doesn’t negate Glassnode’s idea of ​​“long-term conviction holders” adding to their positions. However, there is no historical data to explain the near 16-year high in US 10-year Treasury yields or the hovering average US 30-year fixed mortgage rate at the 7% mark.

Despite current trends, long-term holders can still change their sentiment and actions when adverse economic conditions arise.

Rising stock yields could lure investors, leading to possible volatility, while higher government and corporate borrowing costs could strain budgets and profitability. Meanwhile, the housing market may slow as mortgage affordability suffers. This situation could force central banks to implement fiscal policy to support economic activity, which tends to lead to higher inflationary pressures.

Bitcoin’s emergence as a $50 billion asset class only happened six years ago, leaving people uncertain how holders will respond to the pressures facing some traditional markets. This contradicts historically low volatility in the S&P 500, oil and bitcoin markets.

This raises the question: Will this calm be preceded by a period of turmoil, and can Bitcoin serve as a hedge against escalating inflation? Only time will tell.