Posted:
- Expectations of volatility surrounding Bitcoin have risen.
- Institutional investors have increasingly taken long and short positions.
Bitcoins [BTC] the recent rally has raised hopes amid the vast majority of the crypto market. However, a large amount of uncertainty could be heading towards BTC soon.
Bumps in the road ahead
Charles Edwards, the founder of the Capriole fund, noted that Bitcoin has gone more than 232 days in the past 12 months without a drawdown of more than 25%. The last example of this was over a decade ago, in 2011.
This extended period of low downside volatility is atypical, as such dips typically occur every two to three months. Edwards also expected a return of volatility in the future.
It has now been more than 232 days since Bitcoin had a loss of more than 25% in the previous 12 months. The last time this happened was over ten years ago, in 2011!
The current period of low downside volatility is NOT normal. These dips usually occur every 2-3 months.
Volatility will return. pic.twitter.com/tltHGBKXZK
— Charles Edwards (@caprioleio) December 24, 2023
Long-term holders may find the current trend attractive as it aligns with a less volatile investment environment.
However, the impact on trading behavior could lead to shifts in risk perception, potentially reducing traders’ hedging activity during periods of perceived lower risk. So, traders may need to evolve their strategies.
The prospect of the return of volatility suggested that market conditions could soon change, leading to adjustments in both investor sentiment and trading strategies.
A difference of opinion
In recent months, Futures asset managers have significantly increased their positions in BTC Futures.
At the same time, hedge funds have been actively building short positions in BTC futures, with the total amount of these shorts equaling the long positions taken by asset managers.
As asset managers take substantial long positions, this reflects bullish sentiment and confidence in the upward trajectory of Bitcoin prices.
On the other hand, the simultaneous accumulation of short positions by hedge funds indicates a bearish expectation pattern, indicating an expectation of price declines.
This dynamic interaction between long and short positions creates more volatility and uncertainty in the Bitcoin market.
Read Bitcoin’s [BTC] Price forecast 2023-24
The contrasting perspectives of asset managers and hedge funds can lead to greater price swings as these market participants deal with differing expectations.
Source: Het Blok
At the time of writing, BTC was trading at $43,659.02 while its price grew by $43,659.02 0.17% in the last 24 hours. The number of daily active addresses on the network had also grown during this period.
Source: Santiment