Calm Before The Storm? Bitcoin Volatility At Historically Low Levels

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Data shows that Bitcoin 7-day volatility has fallen to quite low values ​​recently. This is what has historically happened after instances of such a trend.

Bitcoin 7-day volatility has fallen to just 1.6% in the past week

According to the latest weekly report from mysterious investigationthe recent sideways trend in BTC price has caused the volatility to drop to very low values.

the “volatility” is an indicator that measures how Bitcoin’s daily returns have deviated from the average over a period of time.

Here’s a chart showing the trend in the 7-day and 30-day versions of the metric for BTC over the past year:

Bitcoin Volatility

The 7-day value of the indicator seems to have gone down in recent days | Source: Arcane Research's The Weekly Update - Week 39, 2022

As you can see in the chart above, 7-day Bitcoin volatility has fallen sharply over the past week or so.

The value of the statistic is now just 1.6%, a very low level seen only a few times in the last 12 months. However, the 30 day volatility is still around 3.4% lately.

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

Such low 7-day volatility readings are usually followed by significant increases in the metric, as noted by the report.

This happens because leverage is easily built up during these periods. Highly leveraged markets are highly volatile, as sudden price movements can liquidate large amounts of money, further amplifying the change in price.

Since periods of low volatility clearly do not have significant price spikes, leverage can remain inexhaustible and thus accumulate.

Since Bitcoin 7 day volatility has been very low lately, this kind of build-up is expected to happen again in the market. And yes, the perpetual futures denominated in BTC open interest has skyrocketed and is now at an all-time high, supporting the notion that the market is overextended:

Bitcoin open interest

Looks like the value of the metric has been climbing up recently | Source: Arcane Research's The Weekly Update - Week 39, 2022

BTC price

At the moment of writing, The price of Bitcoin hovers around $20.1k, up 3% over the past week. Over the past month, the crypto has gained 1% in value.

The chart below shows the trend in the price of the coin over the past five days.

Bitcoin price chart

The value of the crypto has been moving sideways since the surge a couple of days back | Source: BTCUSD on TradingView
Featured image from Kanchanara on Unsplash.com, charts from TradingView.com, Arcane Research

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