Volatility traders looking to take advantage of significant price swings may soon find opportunities. A key indicator suggests that bitcoin (BTC), currently above $100,000, is like a coiled spring ready to release energy in either direction.
The indicator is the rolling 60-day price range that represents the variation in maximum and minimum prices as a percentage. A tighter range implies stable market conditions characterized by range play and equilibrium between demand and supply.
Analysis from Glassnode shows that bitcoin’s 60-day range is now tighter than the current trading range. Historically, such patterns have predicted volatility explosions.
“All of these cases have occurred before a significant burst of volatility, with the majority being in early bull markets or before capitulations in late-stage bear cycles,” Glassnode said in its weekly analysis report.
Volatility is mean-reverting, that is, it tends to fluctuate around its lifetime average. Rapid price swings typically follow a period of low volatility and vice versa.
It is also price agnostic. Higher volatility means that price swings will be larger and potentially more unpredictable. It does not say whether prices will rise or fall.
However, recent flows have been biased, particularly on the Chicago Mercantile Exchange, where traders have been piling up call options. A similar bullish bias is evident on Deribit and other exchanges.
“BTC futures continue to trend higher, especially on the front end, as the market’s net long exposure from last week remains solid. Bullish bets currently outnumber bearish bets by a ratio of about 20:1,” QCP Capital said in a Telegram broadcast.
If the positioning is any guide, it’s safe to say that market participants are expecting a bullish resolution to BTC’s multi-week consolidation between $90,000 and $110,000.
