Bitcoin Volatility Still a Major Problem, Analysts Say

Bitcoin has appeared to be on something of a roll over the past three months, but according to many analysts, the problem of volatility is not quite over. In fact, 2023 could be prone to some rather unexpected volatility trends that may lead to a short squeeze, thus causing value losses for the BTC network.

Bitcoin Isn’t Out of the Woods Yet

Over the past four or five months, BTC has risen by about 70 percent from where it was at the end of 2023. During that period, bitcoin was trading in the mid-$16K range, a huge dip from the all-time high of about $68,000 per unit it achieved in November of 2021. Nothing could have predicted that bitcoin was going to endure what arguably turned out to be the worst year on record for the world’s number one digital currency by market cap.

At the time of writing, the asset is just below the $28K mark, meaning that while there’s still plenty of room to heal, the currency has done much better for itself during the previous quarter, and the digital token is on the road towards recovery.

Still, analysts at Block Ware Solutions don’t think traders and investors are quite out of the woods yet. They said in a recent report that the currency remains prone to price swings, and that the level of volatility they’re predicting could make 2023 another problematic year for the digital asset. They said:

High open interest relative to market cap means the market could be vulnerable to a short squeeze or liquidation cascade, which would result in a price swing being more volatile than it otherwise would have been due to forced buying or selling, respectively… The medium-term trend of decreasing open interest/market cap has not been broken, which is reassurance that, even in the event of downward volatility, price is most likely not going to decrease to the level it was at to begin the year.

The futures open interest to market ratio has been trapped in a downward spiral since the collapse of the trading platform FTX in November of last year. Despite the recent price consolidation of bitcoin, investors haven’t been as eager to jump into this arena of bitcoin trading for a while. They said:

BTC has essentially traded sideways for the past three weeks, yet we haven’t seen a build-up in open interest. This is a signal that the market is still in a risk-off mode.

FTX: A Major Embarrassment

FTX has affected the crypto space in more ways than anyone could have possibly imagined. The digital currency exchange was listed in the top five exchanges just three years after it came to fruition.

However, it eventually collapsed into a heaping pile of bankruptcy and fraud, and its former chief executive is now awaiting trial.

Tags: bitcoin, bitcoin price, volatility