Bitcoin (BTC) is on the road to recovery following yesterday’s blistering sell-off as the top crypto has climbed back above support at $44,000, where bulls are now battling bears for control of the price action.
Wednesday was one of the most volatile days in over a year as BTC plunged more than 10.7% in just two hours, falling from $45,500 to a low of $40,615 before reversing the drawdown.
After stabilizing near $43,000 in the early hours on Thursday, bulls pushed the price action higher, rallying BTC to a daily high of $44,358 before pulling back to support at $44,000, where it trades at the time of writing.
BTC/USD Chart by TradingView
While many attributed the sell-off to a report that suggested the Securities and Exchange Commission could deny the spot Bitcoin ETF applications it’s reviewing, analysts said that the sell-off was typical of Bitcoin bull markets, and profit-taking was to be expected after BTC gained more than 22% between Dec. 1 and Jan. 2.
According to a report from on-chain analytics firm CryptoQuant, short-term unrealized profits among Bitcoin holders remain at elevated levels, a development that has “historically preceded price corrections as traders take profits.”
Short-term holder supply in profit. Source: Glassnode
CryptoQuant’s data also shows that over the past week, nearly 28,000 BTC were moved on-chain, and the liquid supply of Bitcoin on cryptocurrency exchanges increased.
“The upward trend in the exchange reserves typically suggests an increasing selling pressure, indicating that more coins from the exchange's holdings are potentially entering the market for sale," CryptoQuant said.
Analysts at Bitfinex also see more volatility ahead based on signals coming from the options markets, which show that volatility expectations are higher than they were at any point in 2023.
“Volatility expectations based on implied volatility levels are higher than ever in 2023,” the analyst wrote in a note shared with Kitco Crypto. “On January 2nd, short-term options implied volatility rose sharply, following one of the largest ever expiry events in December. Traders are bracing for more volatility ahead as they anticipate a decision from the SEC on bitcoin ETFs.”
“The top strike price by volume over smaller cherry-picked timeframes could be $60,000,” they added. “However, the top strike price by open interest is $50,500 and the largest open interest by expiration date is for January 26th as per Deribit data.”
Bitfinex said that the all-time high in crypto options volumes recorded in December indicates “a growing interest in the sector.”
“On December 29th, half of the options positions expired, in one of the largest expiry events ever, but due to the ETF news, overall implied volatility rose instead of falling,” they concluded. “IV hit a high of 67.6%, spiking above historical volatility of 41.1%.”
#Bitcoin volatility going through the roof.
Remain realistic and patient.
Overly hyped events are usually very painful for the fast majority of participants.— Michaël van de Poppe (@CryptoMichNL) January 3, 2024
