BTC is currently more stable than gold, Nasdaq, S&P 500; volatility could follow

Bitcoin’s (BTC) price broke past $17,000 over the weekend. But it has been trading relatively flat with low volatility through the first 10 days of 2023, as is typical during a bear market.

BTC’s stability is reflected by the tranquility in the derivatives market and is driven by lower trading activity. This is indicative of a reduction in speculative demand in the largest cryptocurrency by market cap, according to an Arcane Research report.

BTC’s 30-day volatility has sunk to June 2020 levels, the report noted. While the price of BTC is relatively flat, its 30-day volatility level has reached lows seen in 2013, 2015, 2016, 2018, 2019, and 2020.

Therefore, BTC has currently become more stable than gold, the dollar strength index, Nasdaq, and the S&P 500 measured through 5-day volatility.

Bitcoin’s 5-day volatility has fallen below all of these indexes simultaneously — referred to as “relative volatility compression” — only 5 times in the past. Historically, the relative volatility compression in BTC only lasted for 1-2 days.

The current relative volatility compression event, however, has already sustained for 4 days, setting a record, as per Arcane data. Therefore, the current relative volatility compression is unusual, Arcane remarked.

Apart from the relative volatility compression that took place on Sept. 29 last year, all such events have been historically followed by sharp volatility over the next 30 days. Therefore, there is a high likelihood that Bitcoin may see sharp fluctuations over the coming month.

With the current decline in BTC volatility, the implied volatility of BTC options has also reached an all-time low, Arcane noted. This has made straddle strategies more attractive as investors can “utilize cheap options premiums to position for abrupt market moves,” Arcane said.