Bitcoin (BTC): An “abnormal” statistical pattern?

Bitcoin (BTC): An “abnormal” statistical pattern?

Share it

While bitcoin (BTC) has lost almost 80% of its value since its highs, it is worth questioning the evolution of market statistics. Despite the price drop, bitcoin’s volatility does not seem to be disturbed. This phenomenon is all the more rare as several indicators confirm for the time being the fragile stabilization of bitcoin (BTC) at the $20,000 zone. Moreover, while the market is in full fragilization, the defense of the key thresholds by the largest portfolios seems to engage. The study of bitcoin statistics allows us to understand in detail the phenomena that we know today and that we will have to anticipate tomorrow.

A statistically “normal” bitcoin (BTC) crash?

A phenomenon rare enough to be underlined concerns the evolution of the volatility of bitcoin. In clear terms, bitcoin is currently experiencing variations normal” in relation to its history. This observation necessarily raises questions about the long-term evolution of the market. The fact that bitcoin does not experience major statistical changes despite recent events may be a sign of transition from market patterns seen in bitcoin’s (BTC) past..

A stagnation in bitcoin volatility…

The chart below is the calculation of the annual volatility of bitcoin (BTC). This volatility is calculated from the variations of the last 100 days according to the usual financial methodology. We note that this volatility has tended to stabilize around 60% since the start of 2022. This reflects a clear statistical phenomenon: recent bitcoin price movement is not much different from past movements.

Graph of the annualized volatility of bitcoin (BTC). Source: Calculation of historical volatility | Finance – Thomas Andrieu (andrieuthomas.com).

In addition, it is generally observed that the volatility of bitcoin increases during the phases of the rise in the price of bitcoin. Conversely, falling bitcoin price most often results in lower volatility. In other words, it means that bitcoin’s extreme swings are greater during market ups. Yet, the steep drop in bitcoin price in 2022 has not been accompanied by a reduction in volatility. Is this therefore a worrying phenomenon in the medium and long term?

Reduced long-term market attractiveness?

The fact that bitcoin falls neither slowly nor drastically can lead to three conclusions in the future:

  • First, the lack of change in volatility may reduce the potential for a long-term rebound. Indeed, we have seen that the rise in the price of bitcoin is accompanied by an increase in volatility. Therefore, a future rebound in bitcoin without an increase in volatility would not generate satisfactory bullish performances.
  • Then, the absence of a reduction in volatility in the downward phase can be a source of risk. Indeed, the absence of low volatility in bitcoin, despite its low levels, could also be interpreted as an additional downside risk.
  • Finally, stagnating volatility would reduce both downside and upside potential for bitcoin prices.
Chart showing annual change in bitcoin (black) and annual change in money supply (M2, US). Source: Coinbase Bitcoin (CBBTCUSD) | FRED | St. Louis Fed (stlouisfed.org).

This analysis is confirmed by the annual variation of bitcoin. Indeed, Bitcoin recorded bullish performances of up to +1750% in 2017, against “only” +750% in 2021. In addition, the bullish phase of 2021 was accompanied by a strong increase in liquidity on the steps. Which was not the case in 2017.

Reinstatement of $20,000 key support

The $20,000 threshold is all the more important as it represents both a major technical threshold, but also a threshold for the defense of interests. Several statistical and technical indicators confirm the idea that the market should temporize around $20,000. The question that now arises is whether we are actually witnessing a market rebound, at least in the short term.

Statistical signs of the exhaustion of the decline?

It is possible to measure the excess variation of an asset using a cumulative variation over the last n periods. Indeed, most assets have what are called “limits of statistical growth “. That is to sayit is gradually less likely for an asset to go down if the last n periods have also been bearish. This method is very useful and clearly informs us about the investment risks associated with temporality.

Graph showing Bitcoin’s excess variation (bearish excess below 0). Source: www.andrieuthomas.com.

The graph above shows the cumulative variations of the last 50 days on bitcoin. Thus, we notice that the indicator remains extremely channeled between -50 and 50, then -100 and 100 for the extremes. As of June 20, 2022, the indicator is -68. It means that the cumulative bearish variations reach historical extremes, which mechanically increases the probability of a price rebound. The last time the indicator was this low was in February 2018 (-92.5), December 2018 (-64), and June 2021 (-51). Each of these signals was accompanied by a rebound in the price of bitcoin.

Nevertheless, this analysis based on daily variations is essentially valid in the medium term. In the long term, the study of cumulative weekly variations makes it possible to qualify the potential for a rebound. Indeed, the cumulative weekly variations do not show us a clear upward signal. We would therefore above all be in the configuration of a possible next rebound, but the trend for several months would remain bearish..

$20,000 and Major Advocacy !

Many institutions, starting with Microstrategy with its 130,000 bitcoins, entered the bitcoin market with a price around $20,000. A bitcoin permanently below this threshold would lead to solvency problems for many companies, which would lead to a cascading rout of the market. This threshold thus represents the defense of strategic interests for numerous portfolios. In addition, the drop in the price of bitcoin poses profitability problems for some miners.

In our previous publication, we also demonstrated the importance of the $20,000 to $22,250 zone. While bitcoin recently hit $17,500, it has been rapidly rallying to near $21,500 lately. Such a short-term rebound illustrates that bitcoin has reached strategic thresholds for the defense of interests. The sustained breakout of the $20,000 threshold would have called into question the sustainability of the market.

Intervention on TV Finance on the occasion of the risk of crossing the $20,000 support on bitcoin.

Finally, it should be remembered that this fragile stabilization of bitcoin (BTC) is done in synchrony with the actions. Correlation to equities hit a new high at over +90% recently. This phenomenon is generally observed in the major low points of bitcoin (2018, 2020) while the decline of bitcoin generally reflects a lower correlation to stocks.

2 trillion lost…

This destruction of value is historic on cryptocurrencies. It represents nearly 2,000 billion dollars in cryptocurrencies. However, the bond market should lose 4 to 5 times more value since the beginning of the year. Between the fall 2021 peak and current bitcoin levels, the cryptocurrency market lost the capitalization equivalent of $2 trillion. Now, the capitalization of the cryptocurrency market does not exceed $850 billion. In the process, as often during market declines, Bitcoin regained market share. Bitcoin’s dominance has fallen from 39.5% of the market in January 2022 to nearly 47.5% today (+ 8 dots).

At the same time, between June 2021 and June 2022, Bitcoin actually falls by just over 50%, which attests to this “normal” movement. However, the fall since the last peak exceeds 70%. It means that bitcoin is on the verge of an extreme move, with no increase in volatility so far. If we follow this logic of volatility, this means that bitcoin has more than a two in three chance of finishing between $7,500 and $32,300 in June 2023.

In conclusion

Ultimately, while searches associated with the word “bitcoin” have decreased by 60% since May 2021, the latter is suffering great neglect. However, the market crash is not statistically ” unnatural “. In addition, we observe with some amazement a stability of the volatility recorded on bitcoin. Although this could call bitcoin’s long-term potential into question, some players are reaffirming their interest in the $20,000. After a low of $17,500 on Saturday June 18 around 10 p.m., the price of cryptocurrencies marks a bearish stop in synchrony with stocks.

Therefore, while a statistical signal of variations is taking shape in the short term, the market seems to be regaining its emotions. In terms of cyclicality and temporality, the market could regain some color by the end of the summer. Also, it correlates to the cyclicality of stocks. However, the tensions weighing on the markets should not disappear quickly. It should therefore be remembered that the strength of the market remains on the downside, and that a battle of interests is now engaged.

Receive a summary of news in the world of cryptocurrencies by subscribing to our new daily and weekly newsletter service so you don’t miss any of the essential Cointribune!

Thomas Andrieu avatar

Thomas Andrieu

Author of several books, economic and financial editor on several sites, for many years I have developed a real passion for the analysis and study of markets and the economy.


#Bitcoin #BTC #abnormal #statistical #pattern


Share it