For October, we will look at the volatility of the digital asset space and the drop in transaction volume.
From the price action, it may appear that digital assets have had a volatile month with significant gains in the prices of Ethereum and Bitcoin. However, the volatility was at its lowest level in two years in the first half of October. The chart below shows the 30D volatility of Bitcoin, Nasdaq, and S&P500. Bitcoin fell below U.S. equities on the 14th of October before picking up during the remainder of the month.
However, in the second half of the month, the price of digital assets soared on the expectations that the Fed is slowing its tightening program.
These price moves (or lack thereof) are during a period with the lowest transaction volume experienced in the last 12 months. In dollars, the transaction volume is 65% down compared to November 2021. This drop is a function of a low dollar price of assets as well as lower volatility.
Low volatility and low volume led us to believe that we are near the trough of the bottom of the market cycle, with Bitcoin appearing to hold around the $20,000 level. It has remained range-bound between $ 22’000 and $ 18’000 for the last two months. There was a brief dip below $ 18’000 this month, but the price recovered in 8 hours.
Last month we asked whether digital assets will lead or lag the overall market recovery as they are furthest out on the risk curve. The aggressive rally in the back half of October gave us the first hint that these assets may lead the recovery as they led equities and rallied aggressively at the market’s view of the Fed turning dovish. This rally was just one data point, and we will keep watching how the market reacts to events to learn more.