The Bitcoin volatility index is at historic rare lows. In fact, 5-day volatility for BTC just flipped below the S&P 500 index, tech stocks, and gold. Here’s what it could mean for Bitcoin’s price.
Bitcoin price is usually more volatile than stocks, but with 30-day volatility in BTC trading at 5-year lows, this recently was not so. Markets now have a rare volatility inversion between Bitcoin and stocks on their hands.
Bitcoin Volatility Flips S&P 500 VIX
A slowdown in sales on crypto exchanges, low trading volume, and a 6% slide over July accompanied Bitcoin’s dead-quiet pulse to close last month. Moreover, the volatility inversion coincides with Bitcoin and Wall St’s correlation at a 2-year low.
Daily volatility in Bitcoin price changes fell markedly from Thursday, July 20, through Saturday, July 22. The Bitcoin volatility index dropped further from a 3-month trend above the 1.5% range to below 0.75%. Meanwhile, stocks hit some turbulence.
At 16, the VIX isn’t at levels we haven’t seen all year before June. But VIX is up 18% for the month and 25% over the 5-day window. That sudden spike coinciding with Bitcoin’s cool-down month is what caused the odd flip. Don’t go for Bitcoin to buy your cup of coffee just yet, but that is some unusual price stability.
Stable Price a Bullish Indicator for BTC?
Bloomberg reported, “Bitcoin’s 30-day volatility is, in fact, sitting near five-year lows at levels only seen on eight occasions since January 2019.” Warning that traders “must be vigilant,” Web3 firm K33’s Bendik Schei and Vetle Lunde said:
“[Bitcoin volatility inversion with stocks is] a rare feat that has previously foreshadowed substantial volatility eruptions in the near term… The market is clearly in an unprecedented stable stage, which has typically acted as a massive pressure valve for volatility once it finally re-ignites.”
That means the calm down in Bitcoin price movements might indicate a bullish trend reversal. This period of unusually low price swings and volume could be the quiet before the storm. Upward trends are usually periods of erratic price movements, although bear markets can be volatile as well the longer they go.
However, BTCUSD remained rangebound for many months after price changes indexed this low five years back. So don’t expect a “vol bomb” to necessarily usher in a rally. When markets got this unusual readout in 2018, Bitcoin price traded sideways for some time later.
While often criticized as a disqualifier for cash use cases, Bitcoin’s volatility is advantageous to day trading, and that has attracted an enormous amount of the king cryptocurrency’s capitalization.