Glassnode Warns of Volatility as Bitcoin Set to Move Out of Equilibrium
Bitcoin markets could be heading for a period of volatility following an extended lull in trading activity. In its weekly on-chain report, analytics provider Glassnode cautioned that there is likely to be a big move ahead for BTC following a period of low volume and volatility.
“Given the extremely low volatility, and narrow trading ranges of late, it seems this equilibrium is soon to be disturbed,” the report noted.
While Bitcoin briefly jumped 4% on news that the U.S. government came to an agreement on the debt ceiling, that move wasn't enough to break it out of a tight, range-bound channel that it has been trading within over the past few weeks.
BTC has already begun to fall back from that minor spurt of activity. Glassnode confirmed that both digital assets and commodities were currently experiencing their second uptrend correction of the year. It also observed a tighter correlation between the two asset classes in 2023.
The report revealed that Monthly Realized Volatility has dropped to 34%, “which is below the 1-standard deviation Bollinger Band," it noted. This level of low volatility is seen in less than 20% of historical market activity, indicating that there may be an expectation of elevated volatility on the near-term horizon.
Furthermore, transfer volumes remain low, which correlates to low exchange flows. Recent exchange activity has dropped -27.3% relative to the last six months, according to Glassnode.
“The lower volatility, and declining on-chain activity all point towards a sort of equilibrium phase,” the report concluded.
The Net Unrealized Profit/Loss (NUPL) metric confirms this with a reading of 0.29, which is the lower bound of the equilibrium phase. A break below 0.25 would indicate that market profitability has declined back into the capitulation and recovery phase.
While it's impossible to predict exactly what will happen with Bitcoin in the coming weeks, it's clear that volatility could be on the horizon. As Glassnode notes, BTC has been trading in a narrow range for some time now, and any significant movement outside of that range could trigger increased volatility.
Investors should remain cautious and keep a close eye on the market as it develops. While Bitcoin has shown tremendous growth over the past year, it's important to remember that investing in crypto is still highly speculative and comes with inherent risks.