(Kitco News) - In the quest to find the positive side to Bitcoin’s sideways price action since June, cryptocurrency market data provider Kaiko has released a report showing that Bitcoin volatility is now below both the Nasdaq and S&P 500.
“For the first time since 2018, Bitcoin’s 20-day volatility fell below both the Nasdaq and S&P 500 equity indices,” the report from Kaiko said, noting that its volatility has fallen more than 40% from its most volatile point in February of this year.
The data firm highlighted that BTC’s volatility frequently drops below that of the Nasdaq as the index “contains riskier tech stocks and tends to have a tighter correlation with crypto markets.”
Falling below the volatility on both the Nasdaq and S&P is less common, and typically occurs near a significant local bottom, according to Kaiko.
“BTC and ETH are already down 58% and 64% YTD, respectively, and many analysts have been pointing to sellers’ exhaustion and lack of clear catalysts as the reasons for BTC’s recent resilience to equity market turmoil,” the data firm said. “Kaiko data shows that this is the longest period since 2018 that BTC has been less volatile than the Nasdaq 100.”
Crypto vs. U.S. equities volatility. Source: Kaiko volatility data
During trading on Tuesday, the Cboe’s Volatility index (VIX), which measures price fluctuations in the S&P 500, dropped from just below 30 to 28.53 at the time of writing. This suggests that while matters have slightly improved, there is heightened uncertainty, risk and fear in the traditional markets. Year-to-date, the VIX is up 12.23 basis points.
The Nasdaq-100 Volatility Index (VOLQ), likewise, saw a pullback during trading on Tuesday, falling from 34 to 32.76, but remains up 15.4 basis points year to date.
Volatility in the markets could see a resurgence, according to Jeff O’Connor, Head of Market Structure, Americas, for Liquidnet, who commented that “As earning season gets underway, trading desks are facing once in a generation headwinds as economic conditions tighten.”
On top of the increased risk, O’Connor indicated that markets are not behaving as they have historically, such as the VIX “sitting at high levels, but not triggering the type of historical reaction to 3%+ moves in the major equity indexes.”
“The market has become accustomed to the real price volatility, almost desensitized to it. And the wild moves are making trading conditions that much more difficult,” O’Connor said.
The increase in difficult trading conditions has resulted in “historic” levels of cash sitting on the sidelines, according to O’Connor, which has led to a drop in available liquidity, resulting in an overall increase in the cost to trade.
“The macro backdrop will have to change significantly for traditional money managers to move out of their shelters. But with this much cash on the sidelines, when inflation and interest rate peaks start to signal a peak, the move back into markets could be explosive,” O’Connor warned.
Next month’s rate hike decision from the Federal reserve has the potential to bring renewed volatility to the crypto market, but in general, traders are beginning to show increasing optimism about the future of Bitcoin, especially if the U.S. dollar continues to see declines.
