Bitcoin has Lost its Volatility, Resulting in No Price Growth

How will Bitcoin option expiry bring volatility to the crypto market? Find out here!

Bitcoin is not issued by a central bank or backed by a government; therefore, the monetary policy tools, inflation rates, and economic growth measurements that typically influence the value of a currency do not apply to Bitcoin. The supply of an asset plays a vital role in determining its price. A scarce asset is more likely to have high prices, whereas one available in plenty will have low prices. Bitcoin's supply is generally well-publicized, as there will only ever be 21 million produced and only a specific amount created per year. Its protocol only allows new bitcoins to be created at a fixed rate, and that rate is designed to slow down over time.

Bitcoin Supply and Demand

Supply and demand influence the prices of most commodities more than any other factor. Bitcoin's market value is primarily affected by how many coins are in circulation and how much people are willing to pay. By design, the cryptocurrency is limited to 21 million coins—the closer the circulating supply gets to this limit, the higher prices are likely to climb.

It is difficult to predict what will happen to prices when the limit is reached; there will no longer be any profit from mining Bitcoin. As big financial players compete for ownership in an environment of dwindling supply, Bitcoin's price will likely fluctuate in response to any actions they take.

At the time of writing, BTC trades at US$19,000 with 0.4% profit and a 2% loss in the last 24 hours and 7-days, respectively. The benchmark cryptocurrency has been one of the worst performing assets in the top 10 by market cap as XRP (+30%) and Solana (+7%) take the lead.

Bitcoin has plunged more than 52% year to date and is now hovering around US$21,000 per coin, according to data from Coindesk. The most popular cryptocurrency has shed about 70% of its value since hitting an all-time high of roughly US$69,000 in November

The entire crypto market is feeling similar pain. The overall market capitalization of crypto assets has dropped to less than US$1 trillion from its November 2021 peak of US$3 trillion. It's the first time since 2021 that the asset class has been worth less than US$1 trillion.

Many other assets are also experiencing volatility that's shaking investors. The S&P 500 Index this week fell in the bear market territory, defined as a drop of at least 20% from the most recent high. Bonds are also sliding, leaving investors few places to hide in markets.

Data Says it All

Data from Coinglass indicates that there is over US$5 billion in open interest for Bitcoin options, as big players unwind their positions and shift them, the cryptocurrency is likely to see more action. According to the team behind KingFisher, a platform to view data on crypto derivatives, the more likely scenario is to the upside.

In the short term, as monthly close, and options expiry kick in, the price of Bitcoin could quickly trend towards US$20,000. Volatility might be fueled by a spike in short positions opened as BTC trended sideways at its current levels.

Additional data from the team behind Material Indicators claims that Bitcoin has two critical resistance levels if bulls score a green close above US$20,000. These levels sit at around US$20,100 and US$39,000. Although Bitcoin is unlikely to reach the latter levels, due to the current macroeconomic conditions, the cryptocurrency might reclaim the high of US$20,000. In support of this thesis, Material Indicators noted a spike in activity from investors with bid orders of US$100,000 and investors with bid orders of US$10,000.