Is bitcoin set to surge after period of low volatility?

Bitcoin may be closer to bursting out of a period of unusually low volatility if chart patterns and the token’s history are any guide.

Some gauges of how much the largest digital asset swings around dropped toward a record low in the past month as bitcoin hovered around $30,000. The lull coincided with a cooling in the token’s 2023 rebound from last year’s rout. The year-to-date gain stands at 80%, down from 90% through mid-July. 

Potential catalysts for a breakout include pending applications from firms like BlackRock Inc. to start the first spot bitcoin exchange-traded funds in the U.S., which could stoke demand. On the flip side, investors remain alert to the risks exposed by the 2022 crypto crash. The spotlight most recently has fallen on the health of the Huobi exchange linked to crypto mogul Justin Sun.

“An approaching ETF verdict may disrupt the slow phase of the market of late,” Bendik Schei and Vetle Lunde of K33 Research wrote in a note, flagging Aug. 13 as one of the deadlines for a Securities and Exchange Commission response to an ARK Investment Management application. “Whether the SEC postpones, rejects or approves ARK’s filing could ignite volatility in the market.”

Bitcoin retreated about 1% to $29,725 as of 8:05 a.m. in London on Wednesday. Smaller virtual currencies such as Ether and Cardano also struggled for traction. Key charts below provide hints on Bitcoin’s volatility outlook. 

REPEAT PATTERN

Bitcoin has traced a falling wedge — a narrowing price range — that resembles a pattern that presaged a June rally. Chart analysts often view a falling wedge as bullish. A break of the pattern’s upper line would boost their conviction.

“We moved to a positive bias in bitcoin,” Tony Sycamore, a market analyst at IG Australia Pty, wrote in a note, adding technical indicators point to scope for a push toward $34,000.

RARE STRETCH

Bitcoin’s 30-day historical volatility is near the 20 handle after a pronounced drop. The measure has been 20 or less only 2% of the time in the past decade, according to a Bloomberg News analysis. Instances of a retreat below 20 followed by a rebound back above are even rarer: they occurred seven times in the past 10 years and bitcoin rose an average 16% over the next 30 days.

“Bitcoin is severely underpriced given its asymmetric upside and given the rush of cash that’s going to flood” into US spot ETFs for the token, Terrence Yang, managing director at Swan Bitcoin, said on Bloomberg Television.

TIES THAT BIND

A short-term correlation between the Nasdaq 100 Index of technology stocks and bitcoin has turned positive, indicating the two are moving more in step. That suggests swings in equities could have a bigger influence on the token than in recent weeks, just as investors fret over whether elevated interest rates will finally spark a recession that hurts shares.

“At the end of the day the story is all about flows,” CoinShares chief strategy officer Meltem Demirors said on Bloomberg Television. “Right now the flows are telling the story that investors are taking risk off the table.”