Updated: Jun 1, 2022
The 30-day volatility continued to drop in April, reaching a yearly low. In the process, the gap between the 30-day volatility of the Nasdaq and Bitcoin reached the lowest it’s been since September 2020, when Bitcoin was under $10,000.
At the same time, weekly trade volumes of Bitcoin and Ethereum were at their lowest level since August 2020 (when the respective prices were 5x lower). Indeed, trade volumes were down significantly compared to December last year, in which both coins exceeded $15B in weekly turnovers. In April, BTC and ETH weekly trade volumes were down to $7B and $5B.
Bitcoin funding rates also went negative during April as prices continued to slide. Fixed-date maturity contracts followed suit and moved into backwardation for significant periods within the month. As discussed before, the low to negative rates indicate a pessimistic outlook on price movement from market participants.
The market is currently experiencing falling volatility, falling volumes and low funding rates. After the initial reset from November 2021 to early January 2022, the market has been almost wholly range bound between $36,000 and $46,000 through the first four months of 2022. There was a downwards choppy market into March, where there was a slight recovery before another drop through April. In our view, the market will remain in this choppy state for the next few months as it continues to shake out and consolidate. During this consolidation, we expect low volatility and low volumes.
The unknown is whether there will be large inflows into digital assets to counter stagflation or if digital assets will remain a risk asset. If flows start to increase, then we expect the recovery of prices and market action within a few quarters. If stagflation sets in and Bitcoin remains a risk asset, it will most likely take 12 to 24 months for the asset class to start its next breakout.