Bitcoin Sees 2.5-Year-Low Volatility With Rebounding Trading Volume

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Written By: Marcus Wang

Edited by: Charmyn Ho

Macro and Overall Risk Sentiment

The risk-off sentiment has passed on to the first week of 2023, with concerns over hawkish Fed and elevated inflation clouding the outlook of risky assets. Meanwhile, the broader cryptocurrency market has been in its own league, with BTCUSDT and ETHUSDT pairs ending the week with gains of 1.3% and 4,5%, respectively.

Before diving into futures, it is notable that spot trading volume has seemingly bottomed out this week and seems to be gradually recovering, showing an early sign of sentiment improvements.

BTCUSDT Perpetual

Despite unfolding crypto insolvencies from industry heavyweights such as Genesis, Bitcoin has experienced extraordinarily low volatility, clinging to $16k for over two months. Zooming in, the historical volatility has reached a level last seen in July 2020, marking a 2.5-year low. The low price volatility is also reflected by the shrinking width of Bollinger Bands. From a technical perspective, $17k is the near-term resistance level, colliding with the 50-day EMA at $17.1k as well as the 23.6% Fibonacci Retracement level based on the peak in early November 2022.

The first trading week seems to paint a positive outlook for the largest cryptocurrency, regardless of expiring futures or perpetual. The annualized daily basis between March 2023 futures and spot has stood firmly above waters at 1% as of the time of writing, while the funding rate weighted by open interests across major centralized exchanges has persistently remained positive since mid-December. The positive rates are a contrast to the deeply negative funding rates and negative daily basis between spot and expiring futures in the wake of FTX’s collapse, suggesting a cautiously optimistic sentiment from Bitcoin traders. Lastly, the recovering trading volume of Bitcoin perpetual aligns with rebounding spot volume, propping up Bitcoin price to test $17k.

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ETHUSDT Perpetual

Ether has broken out from its 20-day and 50-day EMA resistance, facing a near-term resistance at $1,300. From the technical perspective, a bullish divergence has been formed in the daily chart, where less negative momentum is combined with stable price action. Similar to Bitcoin, the Ether perpetual’s funding rate weighted by open interests across major centralized exchanges has remained positive since mid-December, sending a tailwind to Ether’s future price movement. Notably, while the open interests of Ether options have been cut in half in the past week, open interests of Ether perpetual have been unswayed, suggesting that the drop in option open interests is likely due to the large-scale expiry of December 31 contracts instead of waning investor interests.

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