The Calm Before The Storm
What Record-Low Volatility Tells Us About an Imminent Breakout for Bitcoin
Hey everyone, and welcome back to the On-Chain Mind Newsletter.
Bitcoin is quietly winding the coil. Volatility in the market has fallen to levels we rarely see and this has historically preceded explosive moves. This article dives into the 5 core metrics that are all converging to one point: a breakout may be on the horizon. Iâll ground this discussion in dataâanalysing the volatility compression, accumulation signals, and the statistical behaviour of Bitcoin at the tail end of an eerily quiet phase.
Letâs get into it.
Insights at a Glance:
Bitcoinâs volatility is at historic lows, a pattern that has consistently preceded major price breakouts in past cycles.
Key indicators like the Volatility Pulse and Chopsolidation suggest the market is in a compressed state, primed for a significant move.
The Relative Volatility Index and Volume Surge provide insights for timing entries during low-volatility accumulation phases.
While the direction of the breakout remains uncertain, historical data and current trends lean towards a bullish outcome.
Bitcoinâs Volatility: A Feature, Not a Bug
Bitcoinâs price swings are legendary, and unlike traditional assets, Bitcoinâs volatility is a defining characteristic, driving its extraordinary returns since its inception. However, since its recent climb back above $100,000, its volatility has plummeted to levels rarely seen. This quiet phase mirrors historical patterns that have preceded dramatic price surges.
Volatility is not merely noise; itâs a signal of market dynamics. And low volatility periods, like the one weâre in now, often indicate a market consolidating, gathering energy for its next move.
Visualising the Calmness
The Volatility Waves indicator offers a vivid snapshot of Bitcoinâs price movements. By measuring price changes on a logarithmic scale over a rolling 7-day period, it highlights periods of intense volatility with brighter shades and quieter phases with muted tones. Currently, the indicator shows volatility near historic lows, a stark contrast to the frenetic swings of the 2021 bull market.
Historically, such low-volatility periods are fleeting. Data from previous cycles reveals similar compression phases, each followed by significant price movements. For instance, in late 2020, Bitcoinâs volatility dropped to comparable levels before a rally that saw prices triple within months. This pattern suggests that the current calm is not a sign of stagnation but a precursor to action.
Measuring the Unusual
To gauge how unusual Bitcoinâs current state is, we turn to the Volatility Pulse indicator. This metric uses a Z-score to compare short-term Average True Range (ATR) to its long-term average, flagging when volatility deviates significantly from the norm. The result is an area chart that intensifies in colour during extreme volatility and fades during quieter periods.
Despite Bitcoinâs recent climb from the mid-$70,000s to over $100,000, the Volatility Pulse remains subdued. In past cycles, such price moves typically triggered vibrant spikes on the chart. The absence of such a spike now indicates that the market is statistically quiet, even after a significant price increase. This anomaly suggests that the true volatilityâwhether a breakout to new highs or a sharp correctionâhas yet to manifest.
Chopsolidation: The Tightly Coiled Spring
The Volatility-Based Chopsolidation indicator provides another lens on Bitcoinâs compressed state. By measuring the range between the highest and lowest daily closes over the past 30 days and comparing it to the price low, it identifies periods of unusually tight price action. When this range narrows significantly (currently at about 8.5%) the indicator signals a potential breakout.
This tight range is among the lowest observed in Bitcoinâs history, comparable to periods that saw explosive rallies. A narrow range indicates indecision, with neither bulls nor bears dominating. However, Bitcoinâs broader trend remains upward. While a breakout could occur in either direction, the healthy trend and historical precedent tilt the odds towards an upside move.