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Sharp Bitcoin price action expected as volatility remains at record levels and sellers are 'exhausted'

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Bitcoin’s (BTC) lack of volatility has been the dominant point of discussion among traders for the past two weeks, with current sideways trading in the $18,000 to $25,000 range currently in effect for 126 days. Most traders agree that a significant price move is imminent, but what exactly are they basing this thesis on?

Let’s take a look at three data points that predict an increase in Bitcoin volatility.

Quiet volatility and seller exhaustion

According to Glassnode research, “The Bitcoin market is ready for volatility,” with multiple signals from on-chain and off-chain data. The researchers note that weekly volatility has dropped to 28%, a level typically followed by sharp price action.

Bitcoin realized 1-week volatility. Source: glassnode

The discovery of aSOPR, a metric that “measures the average realized profit/loss for coins spent on any given day,” shows:

“Right now there is a big divergence between price action and the aSOPR metric. As prices move sideways or fall, the magnitude of the locked-in losses decreases, indicating that sellers are exhausted in the current price range.”

Bitcoin tuned SOPR. Source: Glassnode

In addition to the difference between price and adjusted SOPR, short-term Bitcoin holders are approaching breakeven levels as the short-term SOPR holder approaches 1.0.

This is important because a reading of 1.0 during a bear market has historically acted as a resistance level and has a tendency for traders to exit close-to-break positions.

If aSPORT breaks above 1.0 and turns the level to support, it could be an early sign of an incipient trend change in the market.

The short-term holder of Bitcoin is SOPR. Source: Glassnode

Trading indicators are also at pivot points

As independent market analyst Big Smokey points out, multiple technical analysis indicators also signal a strong directional move in the cards.

By analyst:

Crypto research firm Delphi Digital recently published a similar view, describing the “squeeze” within the Guppy Multiple Moving Average as “short-term momentum and the potential for a rally as this cohort tries to flip the long-term moving averages.”

On October 10, Delphi Digital researchers referred to the Bollinger Percentage of Bandwidth (BBWP) metric and suggested the possibility of “making a big move for BTC.” “Historically, BBWP readings above 90 or below 5 have marked points of significant fluctuation,” the researchers explained.

BTC price vs Bollinger Bandwidth Percentage. Source: Delphi Digital

Related: Bitcoin mirrors its 2020 exit, but analysts disagree on whether it’s different this time

State of Bitcoin derivatives

Crypto derivatives markets are also giving multiple signals. Bitcoin futures open interest reached an all-time high of 633,000 contracts, while trading volumes fell to a multi-year low of $24 billion daily. Glassnode notes that these levels were “last seen in December 2020, before the bull cycle broke the 2017 cycle of $20,000 ATH.”

Bitcoin futures open interest. Source: glassnode

As expected during a bear cycle, liquidity, or the amount of money entering and leaving the market, has decreased, strengthening the reason to believe that an eventual increase in volatility could lead to a sharp price move.

While derivative metrics such as futures open interest, long liquidations, and coin margin futures are breaking multi-year records, it’s important to note that neither provides absolute certainty about market direction. It is difficult to determine whether the majority of market participants are positioned long or short, and most analysts will argue that the increase in open interest reflects current hedging strategies.

One thing is for sure, on-chain data, derivatives data, and fundamental technical analysis indicators all point to an impending explosive move in Bitcoin price.

Bitcoin’s current prolonged period of low volatility is somewhat unusual, but a review of data presented by Glassnode and Delphi Digital can provide valuable insight into what to expect when certain on-chain metrics reach certain thresholds, giving investors some insight into how to position themselves.