The Bitcoin (BTC) market is calm, the last time we saw this type of market was before the start of the bull market in late 2020.
The leading cryptocurrency’s 30-day volatility, a measure of the standard deviation of daily returns over a 4-week period, has fallen to 2.2%, its lowest level since Nov. 5, 2020, according to Arcane Research. The gauge peaked above 6% in June 2021 and has been in a bearish trend since, barring a temporary rebound to 4.5% around the March Fed meeting.
The steady decline can be attributed to several factors, including major cryptocurrency exchanges Binance and FTX’s decision to reduce leverage, declining interest in crypto margin futures, and, more recently, less speculative interest such as lower trading volumes. Weekly bitcoin and ether (ETH) trading volumes have fallen to their lowest levels since summer 2021.
DOV has grown exponentially since the second half of 2021, now adding more than $100 million in notional exposure to the market every week. In other words, the sensitivity of market maker books to directional changes is increasing. As such, their hedging activities can help stem the market’s dramatic price swings. Long-term low-price shocks often end in sharp price fluctuations on both sides.
The previous state of low volatility lasted more than two months, with cryptocurrencies mostly trading between $10,000 and $13,000 from late September to early November. The breakout occurred on November 5, when prices surged well above the June 2019 high of $13,800. Bitcoin was last trading near $41,500, up 2% in 24 hours.