Calm Before The Storm? Bitcoin Volatility At Historically Low Levels

Data shows the Bitcoin 7-day volatility has plunged down recently to pretty low values. Here’s what has historically happened following instances of such a trend.

Bitcoin 7-Day Volatility Has Declined To Just 1.6% In The Past Week

According to the latest weekly report from Arcane Research, the recent sideways trend in the BTC price has lead to the volatility dropping down to very low values.

The “volatility” is an indicator that measures how the daily returns of Bitcoin have deviated from the average during a specific period.

Here is a chart that shows the trend in the 7-day and 30-day versions of the metric for BTC over the last year:

The 7-day value of the indicator seems to have gone down in recent days | Source: Arcane Research's The Weekly Update - Week 39, 2022

As you can see in the above graph, the 7-day Bitcoin volatility has plummeted down over the past week or so.

The metric’s value is now only 1.6%, a very low level that has only been seen a few times during the last twelve months. The 30-day volatility, though, has still stayed up recently at about 3.4%.

The reason behind such low weekly values of the indicator is the sideways consolidation between the $19k and $20k levels that the crypto’s price has been stuck in lately.

Such low 7-day volatility values have usually been succeeded by significant surges in the metric, as noted by the report.

This happens because leverage easily builds up during these periods. High leverage markets are highly volatile since any sudden price moves can liquidate large amounts, which further amplifies the price change.

Since low volatility periods obviously don’t have any significant price spikes, leverage can go unflushed and thus pile up.

As the Bitcoin 7-day volatility has been very low recently, this kind of buildup is again expected to take place in the market. And indeed, the BTC-denominated perpetual futures open interest has shot up and is sitting at an all-time high right now, supporting the idea of the market being overleveraged:

Looks like the value of the metric has been climbing up recently | Source: Arcane Research's The Weekly Update - Week 39, 2022

BTC Price

At the time of writing, Bitcoin’s price floats around $20.1k, up 3% in the last week. Over the past month, the crypto has gained 1% in value.

The below chart shows the trend in the price of the coin over the last five days.

The value of the crypto has been moving sideways since the surge a couple of days back | Source: BTCUSD on TradingView

Featured image from Kanchanara on Unsplash.com, charts from TradingView.com, Arcane Research