Bitcoin outperforms commodities as market gears up for high volatility

Despite the broader market crisis induced by the U.S. debt ceiling issue, Bitcoin and commodities, particularly gold and silver, have demonstrated notable performance since the start of 2023.

Graph showing the YTD price of BTC, XAU, and XAG on May 31 (Source: Glassnode)

Over the last 90 days, Bitcoin has recorded a 15.85% increase, outperforming silver’s 12.41% rise and gold’s 6.82% gain.

Graph showing the 90-day performance for BTC, XAU, XAG, and WTI on May 31 (Source: Glassnode)

However, the observed slow and steady returns of Bitcoin should not be misconstrued as an indicator of an impending stable market.

Bitcoin’s monthly realized volatility, a metric reflecting the degree of variation or dispersion of an asset’s returns over a month, has dropped to 34.1%, slipping below the lower limit of the 1-standard deviation Bollinger Band.

Bollinger Bands are a technical analysis tool that plots a set range around an asset’s price, with wider bands indicating higher volatility and vice versa. A drop below the lower band may signal an upcoming correction or reversal.

Graph Bitcoin’s Monthly Realized Volatility bands from 2020 to 2023 (Source: Glassnode)

The slowing down of Bitcoin’s market activity is further substantiated by the momentum seen in exchange activity. Glassnode calculates this metric by comparing the current week’s average number of exchange deposit/withdrawal transactions to the median of such transactions over the preceding six months, creating an activity ratio.

A recent 27.3% reduction in this ratio, compared to the last six months, verifies the trend of diminishing market participation.

Graph showing Bitcoin’s exchange activity momentum from 2020 to 2023 (Source: Glassnode)

These two factors – low investor activity and decreased monthly realized volatility – paint a picture of a dormant, flat market. However, according to Glassnode, such low-volatility periods constitute only 19.3% of Bitcoin’s market history, suggesting a strong probability of an incoming volatility surge.

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