Key Takeaways:
- Bitcoin’s recent bull market, which began in early 2023, exhibits lower volatility compared to previous cycles, with realized volatility averaging below 50%.
- Cryptocurrency exchanges have lowered leverage limits, contributing to a more stable price rally characterized by fewer and less significant price pullbacks than in earlier bull markets.
Bitcoin, or BTC, has faced scrutiny due to its notable volatility, particularly during bull markets that include sharp, sudden price drops. Yet, the ongoing bull market, which started in early 2023, seems to portray a more favorable trend with enhanced stability and smaller drawdowns.
According to analysis from Glassnode, the realized volatility of Bitcoin on a rolling three-month basis has remained consistently under 50% during this bull cycle, significantly lower than the levels noted in past bull runs, which averaged between 80% and 100%. Similarly, the 30-day implied volatility—measured by Volmex’s BVIV index—is currently in a decline, as reported by TradingView. Implied volatility indicates the expected price fluctuations over a given timeframe and is a forward-looking metric.
This newfound stability can be attributed to Bitcoin’s growing market capitalization, which further promotes steadiness and attracts institutional investment through ETFs and derivatives.
“With a market cap exceeding $2 trillion, Bitcoin is now the 7th largest asset globally. As liquidity increases, and the value of an asset hits these levels, it necessitates a significantly larger capital inflow to create meaningful price movements,” Glassnode elaborated, highlighting the diminishing volatility.
The introduction of US Spot ETF Products alongside clearer regulations has modified the composition of Bitcoin’s investor base, allowing skilled institutional investors greater access to the asset for the first time.
Comparing Bull Markets
Analyzing the price charts from previous years, Bitcoin’s 2020-21 bull market—where prices escalated from $4,000 to $70,000—showed multiple steep corrections, often exceeding 30%. In traditional finance, any dip over 20% is considered a bear market.
In contrast, the current surge from approximately $30,000 to over $100,000 since March 2023 presents a different scenario, displaying a stair-step progression characterized by significant rises followed by accumulation periods that pave the way for the next phase of growth.
“In comparison with previous cycles, we’ve recorded shallower drawdown profiles, typically falling under -25% from local peaks, with only a couple of instances going beyond -30%,” noted Glassnode.
The shift in dynamics is again connected to heightened institutional involvement and a decrease in speculative trading practices throughout the broader market.
Major exchanges, like Binance, had offered leverage as high as 100X during earlier bull cycles, allowing traders to hold much greater positions. While this approach magnified profits, it also escalated losses leading to frequent market liquidations and sharp corrections.
However, exchanges have since implemented significant reductions in leverage, which appear to have fostered the more robust nature of the current market rally.
