For more than a month now, the price of bitcoin (BTC) has been below the $20,000 zone. The lasting break of this level is an indicator of the feverishness of investors, who prefer to be below this threshold. Surprisingly enough, current prices came to rest exactly on the high of the week of December 18, 2017. This high of 2017 at $19,220 now constitutes a major support zone. Furthermore, it is important to specify that this technical configuration is added to a unique statistical context for bitcoin (BTC). Apart from the formation of bullish divergences on certain time horizons, the extreme low volatility of bitcoin is something to be taken seriously.
A month ago, we discussed the statistical setup of ethereum (ETH). (Ethereum (ETH): what statistical behavior? – Tremplin.io). We will focus here on bitcoin (BTC) which is showing signs of gradual trend exhaustion, in one direction or the other. Decryption of the statistical situation of bitcoin…
Volatility close to historic lows
The recent evolution of the price of bitcoin (BTC) surprises first of all by the incredible price stability. Indeed, bitcoin (BTC) has lost the equivalent of one percent since October 1. Indeed, it is interesting to note that the average weekly variation of bitcoin between October 2015 and October 2022 (7 years) is +1.75%. So, the current evolution of bitcoin is first of all close to the historical “norm”. Nevertheless, the evolution of the course remains underperforming to that observed in the past. In this context, it is relevant to study the volatility of BTC. That is to say the instability of prices compared to the evolutions observed in the past.
The chart below shows the weekly volatility of bitcoin (BTC) over the past 50 weeks. Thus, the (weekly) volatility of bitcoin is currently close to major lows (8.8%). In a previous publication, we showed that a structural rise in bitcoin was generally accompanied by an increase in volatility. Conversely, periods of decline in BTC are more likely to be associated with periods of low volatility. As a result, since the downward movement initiated at the end of 2021, the fall in volatility of BTC has only been relative.
Over the last 6 months, we have witnessed a slight rebound in volatility, which was essentially accompanied by a fall in prices. In any case, the volatility of BTC today remains close to its all-time lows, which have impelled upward movements, such as mid-2020 or December 2020. As a result, it can be argued that BTC is mired in a increased volatility weakness. It is therefore reasonable to anticipate that this new stagnation in BTC volatility will be associated with a new downward movement that would be relatively limited, or else a lasting upward reversal.
The indices are starting again, the bitcoin stopped…
Over the past few weeks, stock market indices have posted a double dip. (Temporization of the markets: The announced rupture of the strategies of the investors … – Tremplin.io). This rebound movement is all the more decisive as it takes effect on major long-term equilibrium zones. A new phase of decline in stock market indices would have a negative impact on all markets. While stock indices rebounded, cryptocurrencies remained flat. Overall, the capitalization of the cryptocurrency market remains below $1 trillion.
In this context, we can recall that the correlation between the S&P 500 and the price of BTC is a long-term indicator. Indeed, a rapid rise in the correlation of the BTC / S&P 500 is generally associated with a phase of major decline in cryptocurrencies. The low point on cryptocurrencies then appears once this correlation reaches a maximum. In July 2022, at the major low point of the market, this correlation coefficient was close to 95%. After a relapse until September 15, the correlation coefficient now stands at just over 60%.
Thus, two scenarios emerge:
- First, we can imagine the continuation of the upward trend on the indices. In this case, without sufficient upside (return of liquidity), then bitcoin would continue its stagnation but would initiate a bullish configuration.
- Then, in the event of a relapse in the indices, it is likely that the price of BTC will follow. A lasting relapse would send a long-term negative signal, whether for indices or cryptocurrencies. In the opposite case, we can assume that the relapse of the indices would be rather temporary.
Finally, without trend release in the coming weeks, the lack of visibility could remain significant.
The intensity of the drop is weakening
Another recent statistical feature, since the start of the downtrend, is the loss in intensity of the downside. The graph below shows the number of consecutive weeks of decline in the price of BTC. Spring 2022 marked a major record of weeks of non-stop declines. Indeed, we have witnessed 8 weeks of uninterrupted decline, that is to say the equivalent of 2 months! The last such level was reached in the summer of 2016.
Moreover, we can clearly see that the last few months reflect a loss of intensity of the decline. It is quite rare, not to write impossible in the history observed so far, that we again witness a major downward movement (more than 4 weeks). As a result, BTC is relatively well-prepared against the risks of a further sustained decline.
In addition, it will be noted that a greater rarity of consecutive weeks of decline can be associated with an uptrend. This bullish trend becomes maximum when we observe an abnormal deficit of consecutive bearish weeks. The frequency of the weeks of decline, or rise, is directly related to their intensity…
Bitcoin (BTC): a possible reversal?
A final point deserves to be underlined. We have seen that the current price volatility of most cryptocurrencies is particularly low. We also discussed the recent divergence between stock and cryptocurrency movements. This divergence is also reflected in a decrease in the intensity of bearish periods. But where exactly are we in the intensity of this decline?
To answer this question, we have represented the graph opposite. This is the cumulative variation of the last 50 weeks on the bitcoin price. This indicator makes it possible to highlight trend reversals in the market. Indeed, a lasting decline in the indicator reflects the fact that the fall in prices is lasting and/or powerful. The current level of the indicator is precisely the lowest observed in December 2018.
Consequently, the bearish trend of bitcoin, due to the importance of the variations observed (of their duration and their intensity), is confronted with major supports. The last time bitcoin’s 50-week cumulative change was negative was in December 2018. Back then, bitcoin’s low cumulative change (<50) lasted about 6 months. It should therefore be specified that the recent evolution of the price of BTC results in an abnormal weakness of the variations.
Once we have made this observation, two conclusions are offered to us:
- Any further sustained decline in bitcoin would be relatively unlikely. Indeed, the extreme weakness of the cumulative variations leads us to suppose the maintenance of a stagnation or a bullish configuration.
- As a result, any downward movement could be either intense or brief. In either case, a further decline in price could be interpreted as a material blow to BTC’s long-term upside potential.
In any case, this analysis prompts us to be extremely cautious. The abnormality of the weakness of the variations can be interpreted in a two-headed way.
Conclusion
In short, we have seen that the price of bitcoin (BTC) is in a unique statistical configuration. On the one hand, its low volatility also reflects the presence of significant price stagnation. Indeed, over the last three weeks, the price of bitcoin has hardly changed. Significant volatility congestion can be a factor of long-term upside potential, or short-term downside potential.
But the stagnation in the price of BTC diverges from the recent movement in stocks. Indeed, while the price of stock market indices is rising, that of cryptocurrencies is struggling to show the slightest sign of recovery. In any case, we observe a decrease in the correlation rate since the summer of 2022 between the BTC and the S&P 500. This could constitute an argument against downward pressures.
At the same time, we are witnessing a greater recurrence of consecutive weeks of decline. A continuation of the decline in the coming weeks, without stopping, would be of low probability. However, even if such a phenomenon were to materialize, it would reflect a major anomaly in the historical behavior of bitcoin (BTC).
Finally, the study of cumulative variations shows the historical weakness of bitcoin variations. In fact, the duration of price action weakness is historic. We can therefore hope that the price of bitcoin will regain strength in the coming weeks. Otherwise, the loss of upside potential of the price could become increasing…
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