According to the data, Bitcoin’s realized volatility index has fallen to historically low levels. What typically happens after this pattern forms?
Bitcoin’s realized volatility has dropped significantly recently
In a post on X, CryptoQuant author Axel Adler Jr discussed the latest developments in Bitcoin’s realized volatility. Realized volatility here essentially refers to a measure of how much a particular asset has fluctuated based on its price returns within a particular period of time.
A high value of this indicator means that the asset has experienced large fluctuations during that period, while a low value of the indicator means that the price movement of the instrument has stagnated.
Below is a chart showing the trend in Bitcoin’s one-week realized volatility over the past few years.
As shown in the chart above, one-week Bitcoin realized volatility has recently fallen to fairly low levels of around 7%. This is quite extreme, as the metric has only fallen similarly 10 times in the past six years.
This means that cryptocurrencies’ recent consolidation is one of the tightest in history. Historical patterns may provide some clues as to what this metric’s trend means for cryptocurrencies.
A closer look at the charts reveals that the asset’s stagnant price action is typically resolved with bursts of sharp fluctuations, the most recent instance occurring just prior to the rise towards a new all-time high (ATH).
Given this pattern, it’s possible that BTC’s recent consolidation could lead to another sharp move in the cryptocurrency, though it’s worth noting that any price action emerging from this narrow range would likely be a crash, as volatility emerging from realized volatility lows has historically moved in either direction.
Given the historically sluggish movement over the past week, it remains to be seen how Bitcoin’s price will fare going forward.
In other news, as Accel pointed out in another X post, the recent movements of bankrupt exchange Mt. Gox have caused many on-chain indicators to show false signals.
The analyst cited the Bitcoin Adjusted Expense Output Return (aSOPR) chart as an example.
aSOPR tracks the net gains or losses realized by investors across the network, and since Mt. Gox’s BTC had been sitting still in wallets for quite some time, it’s not surprising that its movement resulted in significant gains being “realized.”
Of course, a spike in this indicator is not actually a sign of profit taking, and therefore is not a signal that will impact the market.
BTC Price
Bitcoin has fallen over the past day and is currently down to $66,800.
Featured image from Dall-E, CryptoQuant.com, chart from TradingView.com
