Bitcoin Traders Expect Volatility

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Bitcoin

Investors in Bitcoin are rarely happy when a price pump is followed by a steep correction that causes forced liquidations in futures contracts and intensifies the downward price movement. Instead, they are usually anticipating and enjoying volatility. Because traders can employ leverage, bitcoin futures are crucial because the larger this market grows, the more impact it has on prices.

On March 21, the total open interest in Bitcoin futures increased from $30 billion two weeks earlier to an all-time high of $36 billion. Furthermore, the dominant market player, the Chicago Mercantile Exchange (CME), recorded an open interest of $11.9 billion, which exceeded the amount of money that US spot Bitcoin exchange-traded funds (ETFs) have received since their launch.

Multiple Factors Point Towards Bitcoin Volatility

Even with the successful introduction of these instruments, several experts predicted decreased volatility, given that spot ETFs trade more than $3 billion a day on average. However, recent data indicates that the opposite is really true, with a rise in Bitcoin volatility over the last four weeks.

Bitcoin’s 30-day volatility peaked at more than 80%, the highest level in over 15 months. In comparison, WTI oil futures have a 23% volatility while the S&P 500 index has a 13% volatility. Even firms deemed to be volatile in the traditional market, such as Nvidia and Unity Software, now exhibit volatility of 72% and 59%, respectively.

A 10% drop in price on March 19 which resulted in a price of $60,795 and a 12% increase on March 20 are two instances of Bitcoin volatility. This unanticipated price swing resulted in the forced liquidation of $375 million worth of Bitcoin futures contracts over the course of two days. This change clearly influences the path of the bull run and, more crucially, how the market perceives the risk associated with Bitcoin, even though it may not have an immediate impact on holders.