Bitcoin [BTC]: Analyzing the ‘why’ behind its falling volatility

• Over the last 30 days, Bitcoin’s volume declined by nearly 37{ee212069bfc2680724ddd6b0d505d051cd6a6be760d8da0a6a57844f2abae5c8}.
• BTC worth $1.3 billion was taken off of exchanges on 15 May.

Bitcoin’s [BTC] volatility has again become a subject of interest for crypto watchers. According to Lucas Outumuro, head of research at blockchain analytics firm IntoTheBlock, the 60-day annualized volatility for the largest digital asset in the market has slipped below 40{ee212069bfc2680724ddd6b0d505d051cd6a6be760d8da0a6a57844f2abae5c8}, the eighth such occurrence in the last 5 years.

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The analyst used historical data to demonstrate that, on average, volatility stays below the specified level for 5 weeks before resulting in a 46{ee212069bfc2680724ddd6b0d505d051cd6a6be760d8da0a6a57844f2abae5c8} price gain for BTC. While this could inject great optimism among BTC bulls, Outumuro recalled three instances in which these circumstances came before a 50{ee212069bfc2680724ddd6b0d505d051cd6a6be760d8da0a6a57844f2abae5c8} fall in the value of BTC.

Bitcoin’s volatility has dropped to historically important levels

60D annualized vol is under 40{ee212069bfc2680724ddd6b0d505d051cd6a6be760d8da0a6a57844f2abae5c8} for the 8th time in last 5 yrs

On average $BTC vol remains below this level for 5 weeks and results in a 46{ee212069bfc2680724ddd6b0d505d051cd6a6be760d8da0a6a57844f2abae5c8} price gain

These conditions also preceded 3 crashes of 50{ee212069bfc2680724ddd6b0d505d051cd6a6be760d8da0a6a57844f2abae5c8} pic.twitter.com/G4YIZLvcsQ

— Lucas (@LucasOutumuro) May 16, 2023

Trading activity cools down

Bitcoin’s trading ranges continued to narrow, indicating the rising level of market skepticism. Upon considering BTC’s price chart on a daily time frame, the king coin has oscillated within a range of $26,600-$27,400 over the last week.

The Bollinger Bands (BB) converged significantly since the high volatility phase seen in late March.

Moreover, Bitcoin’s trading volume also diminished considerably since March. Despite breaking through the $30,000 level in April, the monthly volume plunged to $492.2 billion, a whopping 55{ee212069bfc2680724ddd6b0d505d051cd6a6be760d8da0a6a57844f2abae5c8} drop from the $1.1 trillion seen during the month of May, as per data from Token Terminal.

Over the last 30 days, the volume declined by nearly 37{ee212069bfc2680724ddd6b0d505d051cd6a6be760d8da0a6a57844f2abae5c8}.

Source: Token Terminal

Another factor which could have contributed to the softening volatility was the marked decline in daily active addresses.

As per Santiment, the number of unique addresses involved in BTC transactions fell to 811.9k on 16 May. This marked a decline of nearly 28{ee212069bfc2680724ddd6b0d505d051cd6a6be760d8da0a6a57844f2abae5c8} from a month ago.

Source: Santiment

Bitcoin’s exchange outflows surge

Among other factors, the declining volatility indicated that large addresses might be engaging in a wait-and-watch strategy. This could be due to a lack of clear buy and sell signals from the market.

As per Glassnode, more than 48,560 BTC coins were taken off exchanges on 15 May, worth a whopping $1.3 billion.

Source: Glassnode

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The major chunk was withdrawn from Coinbase, which was the biggest pullback from the exchange in 2023 and the biggest since December.

Such large withdrawals can be explained by either a shift to a long-term holding strategy or a willingness to keep one’s money in self-custody.