Cryptocurrency has returned into the global spotlight as the price of Bitcoin briefly topped the key $10,000 level again this week, and some strong rallies have been seen in the altcoin space. The leading crypto, now trading around $9,804, has gained upwards of 34% YTD, making it the best-performing asset so far this year.
While crypto bulls have been cheering for the recent upward price action, many may have been wondering what factors contributed to the latest rally other than the upcoming reward halving event. We’ve sorted out some of the recent developments in the crypto space for market participants.
1. Near record low volatility
We want to highlight the drop in BTC’s volatility despite the recent positive price actions. Prices of cryptocurrency are generally more volatile than other assets, such as equity indexes and traditional commodities like energy and metals. Volatility could provide a measure of price uncertainty in markets. When volatility increases, traders may trim their cryptocurrency positions or delay investment decisions.
Figure 1 shows the 3-month realized volatility of BTCUSD, which recently dropped further near the record low in mid-November 2018. Generally, low volatility could encourage more HODLers to maintain their holdings; therefore, it’s considered a positive factor for the price.
Figure 1: BTCUSD 3M Realized Volatility Source: Skew via Twitter)
Figure 2: BTCUSD 3M Implied Volatility (Source: Skew)
However, we’ve also noticed that BTCUSD’s implied volatility has been hovering in recent lows, although it seems to have picked up by a small fraction. In the options market, implied volatility is the expected volatility of an underlying asset over the life of the option, in this case, Bitcoin.
Supply and demand for the options could directly influence implied volatility. When the market’s expectations rise,