Key facts:
- According to the Kraken report, bitcoin entered a cycle of increased volatility.
- Between March and September, addresses with a balance between 1,000 and 10,000 BTC grew.
Kraken's research unit published an analysis of the Bitcoin market from march to september of this year. For the authors of the report, Bitcoin is going through a new cycle of volatility right now, which began approximately two months ago, when the volatility reached a minimum value of 23%.
Historically, september has been a month of low returns for Bitcoin. The main kryptom currency ended the month with an 8% drop in price, according to the September 2020 Bitcoin Volatility Report.
Despite Bitcoin's negative return in September, its network registered a boom in several of its key parameters last month. Between may and september, for example, the report points out the growth of Bitcoin's active addresses, with a balance between 1,000 BTC and 10,000 BTC.
The increase in addresses with these balances is in the order of tens, but you have to take into account that these are balances that exceed USD 11 million and that reach just over USD 110 million.
Even with a drop in bitcoin appreciation of 8%, addresses with thousands of BTCs grew in September and account for 28% of supply.
Source: Kraken Intelligence.
The funds associated with this address segment grew to complete 28% of Bitcoin supply, about 5.2 million BTC. These are equivalent, at the current price, to about $58.7 billion. Given the level of capital required to participate in this segment, Kraken suggests that "smart money" is behind bitcoin and that the resulting demand looks healthy.
Total active addresses have grown steadily since march, while the price has barely exceeded $11,000, the report says. This price level was seen in December 2017 and July 2019. But the rise in active directions, to almost a million, is a milestone only surpassed between december 2017 and january 2018.
The report points out that the discrepancy between the two growths suggests that the price still doesn't show all the profit and growing demand for Bitcoin. Another parameter that reflects Bitcoin's growing robustness is the hash rate, or its processing power. The report points out that even with the "uninspiring" price evolution in September, the network's strength indicators are still not adequately reflected in the price.
After the expected drop in the hash rate, following Bitcoin's third halving, this indicator of Bitcoin's processing power resumed its upward trend, closing september at nearly 150 exahashes per second (EH/S), almost 50% above the hash rate at the beginning of the year.
Bitcoin sinks into the 'suppressed pocket'
In another section of the study, Kraken Intelligence analyzes periods of high Bitcoin price volatility, which have occurred after a drop in volatility below 30%. By historical trends, Bitcoin remains above the 15% to 30% annual volatility range, marked in the following graph by the red and orange lines. This range is referred to as the 'suppressed pocket'.
Volatility, when crossing below 30%, usually anticipates an upward period, 83% of the time. Source: Kraken Intelligence.
The band indicated in the graph has a strong historical weight as a prognosis of a bullish stage. After the volatility curve hits or crosses below 30%, a cycle of higher volatility tends to begin.
Out of 12 times the annual volatility has entered the mentioned pocket (when it falls below 30%), 10 periods of increased volatility of a bullish sign have taken place afterwards. Only twice has volatility been accompanied by a downward trend.
The following table specifies the volatility cycles, which occurred after the volatility dropped to 30% or below 30%. For each cycle, you specify the start and end date, the duration in days, the minimum volatility reached, and then you specify the level of volatility reached in each cycle and the return of Bitcoin in that period.
12 periods of high volatility of Bitcoin are specified. There is a new cycle in development. Source: Kraken Intelligence.
On july 24th, according to the following table, a rupture (initially bullish) has already begun but has not yet concluded. This is the last line of the table. Its duration is not known, nor the resulting return of Bitcoin. Nor is it known to what level the volatility will go. It is only specified that the cycle began after the volatility dropped to 23%.
In the tenth line of the table, it can be seen in which period the maximum return of BTC occurred, 838%. This occurred in a cycle between June 2017 and january 2018. At the end of this period, Bitcoin's historical maximum occurred on december 17, 2017. This period also corresponds to the highest cycle of volatility, 241 days or eight months.
Another cycle, of four months, from august 2013 to december 2013, (third line of the table) corresponds to the first time that BTC exceeded USD 1,000.
By the end of september, says Kraken, it had been 68 days since volatility went deep into the "suppressed pocket. Since then, Bitcoin has had a 12% return and volatility has reached 55%.
Given the previous 12 instances in which volatility went into that pocket, Bitcoin is still far from the 45% return median and from reaching the 107% return median peak, the study says.
Typically, volatility cycles last three months, says Kraken. And although he reiterates that history does not necessarily repeat itself, he notes that there would be approximately one month left to know the result of the current volatility cycle.
Looking at historical patterns, october will be better than September, estimates Kraken, and predicts a return of 11% for this month. On average, october has been 10% more volatile than september, so it is also expected that this trend will be repeated this year to mark the beginning of the last quarter of the year.
After the so-called "Black Thursday" on march 12, the prospects of a global health crisis precipitated a decline in all markets, including Bitcoin and the rest of the cryptosystems. That moment marked a peak in Bitcoin's volatility, and the recovery period was followed by an extended phase of low volatility.
Coin Metrics showed that after several periods with volatility below 50%, the volatility cycles that follow are of increasing amplitude.
After periods of low volatility, the volatility variability is higher in recent times (color of the curves more intense). Source: Coin Metrics.
It would be necessary to wait for the completion of the current cycle of volatility, which began at the end of july, to confirm this trend. At the moment of writing this article, Bitcoin shows a quote of USD 11,402, which represents a 4.3% appreciation in the last 7 days and a 137% return from the minimum reached on march 12.
