Bitcoin futures and options markets are pricing in higher volatility in the near future. Meanwhile, on-chain activity remains firmly in bear market territory, but continues to recover meaningfully.
Bitcoin markets have seen another week of low volatility and price consolidation, trading up from $37,680 and towards the range high of $42,312 over the weekend. As prices trade within this narrow range, and volatility is squeezed out of the market, the odds of higher volatility in the near-term builds.
In this edition, we will focus on three core areas of the market, in an attempt to characterise the most likely mechanisms driving the next major move in the market:
- Geographical dominance of buy and sell-side pressure using a suite of newly released metrics.
- On-chain activity and supply maturation metrics which describe the recovery of the network user-base in bear markets.
- Derivatives markets which price in current, and future volatility, as well as provide insight into behaviours associated with risk-neutral cash and carry positioning.
Executive Summary
- Current buy side demand appears to be dominated by US and EU markets, with the majority of sell-side sources during Asian trading hours.
- Bitcoin network utilisation and on-chain activity remains firmly within bear market territory, albeit is recovering. A sustained upwards impulse in network activity would likely be constructive, whilst deterioration likely favours the bears.
- The amount of BTC supply absorbed during the current drawdown is similar in magnitude to the period after the March 2020 sell-off. However it remains modest at best, and is a key metric to keep an eye on in coming weeks.
- Derivatives markets are currently pricing in historically low implied volatility, and futures premiums. Such market structure has historically preceded periods of very high volatility, and most often to the upside.
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