Bitcoin: Good sign of decreasing price volatility. What analysts and investors say

"Bitcoin is basically moving over the last four months in a range of $18,000 - $25,000, which shows stabilization and probably a bottom," said an executive at cryptocurrency exchange Luno

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Bitcoin is basically moving over the last four months in a range of $18,000 – $25,000, which shows stabilization and probably a bottom,” said an executive at cryptocurrency exchange Luno

Bitcoin’s low volatility lately is a good sign and could actually mean that prices have bottomed out, analysts and investors told CNBC.

Cryptocurrency prices have plummeted from their dazzling run last year, when bitcoin climbed to $68,990. In recent months, however, bitcoin’s price has been hovering steadily in a range near $20,000, indicating that its volatility has stabilized.

Last week, bitcoin’s 20-day rolling volatility was lower than that of the Nasdaq and S&P stock market indices for the first time since 2020, according to data from research firm Kaiko.

Bitcoin’s correlation with equities has increased over time as more institutional investors have invested in cryptocurrencies.

“Bitcoin has basically been moving in a range of $18,000 – $25,000 for the last four months, which shows stabilisation and probably has bottomed out as we see the dollar exchange rate peaking at the same time,” said Vijay Ayyar, an executive at cryptocurrency exchange Luno.

“In previous instances, like in 2015, we had seen bitcoin bottom out when the dollar exchange rate was peaking, so we could see a very similar pattern now,” he added.

Antoni Trenchev, co-founder of cryptocurrency bank Nexo, said bitcoin’s price stability is “a strong sign that the digital asset market has matured and is less fragmented”.

End of the cryptocurrency winter?

The market value of cryptocurrencies has fallen by about $2 trillion from its 2021 highs.

The so-called “crypto winter” is largely a result of the Fed’s aggressive interest rate hike policy in an attempt to tame very high inflation.

Large cryptocurrency investors with highly leveraged bets, such as Three Arrows Capital, have been affected by the price pressure, further accelerating the market’s decline.

Institutional investors are backing bitcoin

However, some investors believe the ice may be starting to melt. There are signs of a “accumulation phase”, according to Vijay Ayyar, with institutional investors being more willing to bet in favor of bitcoin given the calm in its prices.

“The fact that bitcoin is stuck in such a range makes it boring, but this is also what happens when retail investors lose interest and smart money starts to accumulate,” Ayyar noted.

Matteo Dante Perruccio, president of international digital asset management firm, Wave Financial, said he has seen a “seemingly irrational increase in demand for cryptocurrencies from institutional investors at a time when interest in traditional markets is generally declining.”

Banks invest in cryptocurrencies

Financial institutions have continued to invest in cryptocurrencies despite falling prices and reduced interest from small investors.

Mastercard announced a service that allows banks to offer cryptocurrency transactions, having previously launched a new blockchain security tool for card issuers.

Visa, meanwhile, has partnered with cryptocurrency exchange FTX to offer debit cards linked to users’ transaction accounts.

Goldman Sachs reckons we may be near the end of a “highly bearish” period in the latest crypto movement cycle. In a note released on Thursday, analysts at the bank said there are analogies to bitcoin trading in November 2018, when prices stabilized for some time before beginning a steady upward trend.

“The low volatility (in November 2018) followed a large down market in bitcoin,” Goldman analysts wrote.

Wave Financial’s Perruccio expects the crypto winter to end in the second quarter of 2023.

All eyes on the Fed

James Butterfill, head of research at cryptocurrency asset management firm CoinShares, said it would be difficult to draw too many conclusions at this stage.

“The biggest outflows of funds recently have been into short-Bitcoin positions, while we have seen small but uninterrupted inflows into long Bitcoin over the last 6 weeks,” Butterfill said.

The main development that would lead to larger bitcoin purchases would be a signal from the Fed that it plans to ease its aggressive policy, he added.

The Fed is expected to raise interest rates by 75 basis points at its meeting this week, but officials are reportedly considering slowing the pace of future hikes.

“Our clients are saying that as soon as the Fed changes policy or is close to a policy change, they will start to increase their Bitcoin positions,” Butterfill said.

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