News Continues to Rock Bitcoin And Create Volatility

News Continues to Rock Bitcoin And Create Volatility

Bitcoin markets had been quiet for several weeks, but volatility has rocketed back and offers exposure to price movement to crypto traders.

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Crypto markets were rocked over the weekend by the type of volatility and sharp moves that seemingly used to occur daily. When it was said and done, bitcoin moved lower by 13% in what was a swift and dramatic freefall.

Bitcoin had generally been trading in a daily range of roughly $100-200. Last Sunday, we saw a drop of around $1,000.

It felt like to good old days of crypto trading, which were only a few months ago, when things changed dramatically day to day and intraday quite often.


visual built by Jason Pfaff in TradingView


Bitcoin volatility had ebbed for several weeks, and we detected in our models the potential for flatter pricing trends as far back as March.

The culprit for lower volatiltiy in recnt weeks seems to have been a near vacuum with respect to newsflow. That all changed in a flash last weekend.

Broadly speaking, blame fell on newsflow from South Korea indicating an exchange there was hacked and about 40 million in altcoins were stolen.

South Korea is the worlds third largest crypto market, behind the US and Japan, and bad news there can roil markets.

The news impact curve, a mathematical model measuring the impact of major news on an asset, has long demonstrated news typically has a massively outsized impact on bitcoin. Meaningful news can result in an 80% swing in volatility for bitcoin. A more conventional currency pair like USDJPY has a 20% move on the same measure. Simply put, news of the same magnitude impacts bitcoin 4 times more than it does the Yen.


volatility data via NYU Stern Volatiltiy Lab


Since this weekend, bitcoin has been grinding sideways and ranging around the lows carved on Sunday, which are at a level roughly in line with the trough of early February.

Returning to the lows of early February, which came as a result of a steep and rapid descent as well, can be instructive as to what we can potentially expect from here.  


visual built by Jason Pfaff in TradingView


Over the longer term, we see the structure in place for a stable ascension in bitcoin price. Our forecast is for a value of $11,300 by the end of 2018. This correlates to a potential value of $8,000 by the end of June. If volatility remains persistently higher, it normally equates to higher volume in bitoin trading, which could add further momentum. The relative strength index is in oversold territory and the price is at a firm level of support that has held, so the conditions might be in place for a potential recovery in price and a move higher.

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