Cryptoverse: Bitcoin’s no longer the king of the swingers

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A neon logo of cryp­tocur­ren­cy Bit­coin is seen at the Cryp­sta­tion cafe, in down­town Buenos Aires, Argenti­na, May 5, 2022. REUTERS/Agustin Marcarian/File Photo

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Sept 6 (Reuters) — Bit­coin’s been called a lot of things. Buzzy, beguil­ing, baf­fling, even bogus. But nev­er boring.

Yet, of late, it’s been eeri­ly subdued.

The king of the swingers has been unchar­ac­ter­is­ti­cal­ly tread­ing water for days at around $20,000 and has­n’t ven­tured far beyond that since June.

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That spells trou­ble for traders and exchanges that prof­it from bit­coin’s wild price lurch­es, and is open­ing the door to its archri­val ether which is prepar­ing to up its cryp­to game by mov­ing to a mean­er and lean­er blockchain.

“Bit­coin is not dead, it’s just bor­ing at the moment, so traders are already look­ing for alter­na­tives,” said Mar­tin Lein­we­ber, dig­i­tal asset prod­uct strate­gist at MarketVector.

Bit­coin’s aver­age 30-day volatil­i­ty — a mea­sure of how its price varies over a set peri­od of time — has slumped to 2.7% from over 4% in ear­ly July, accord­ing to data firm Coinglass.

That num­ber has stayed firm­ly below 5% in 2022, even in the most tur­bu­lent months of the “cryp­to win­ter” of depressed prices — a depar­ture from the past five years when even peri­ods of low­er volatil­i­ty were fol­lowed by spikes as high as 7%.

Sim­i­lar­ly, an index from Cryp­to­Com­pare, which uses bit­coin futures con­tracts to work out how far prices are expect­ed to change, stands at just over 77, down from above 90 at the start of the year.

Bit­coin has seen peri­ods of reduced volatil­i­ty in the past, often dur­ing peri­ods of depressed or falling prices, with its price swings often com­ing back as trad­ing activ­i­ty picks up.

This slump may be dif­fer­ent, though.

“This has been a rel­a­tive­ly long peri­od of decreased volatil­i­ty, it’s now beyond any­thing we’ve seen in even 2019 where these lev­els last­ed around a quar­ter to a quar­ter-and-a-half,” said Stéphane Ouel­lette, CEO at cryp­to deriv­a­tives provider FRNT Financial.

ETHER OVERDRIVE

Lein­we­ber at Mar­ketVec­tor point­ed to an uptick in trad­ing for ether and its deriv­a­tives as a side-effect of bit­coin’s sub­dued volatility.

Indeed, the price of ether — the No.2 cryp­to with a mar­ket cap of rough­ly $190 bil­lion ver­sus bit­coin’s $380 bil­lion — has risen 50% since the start of July while bit­coin has been flat.

Ether does­n’t offer more price dra­ma; it is far less volatile, with its high­est lev­el being just over 2% in March 2020 dur­ing the worst of the COVID mar­ket rout, accord­ing to data firm Messari.

Yet it is soak­ing up a lot of the cryp­to buzz at the moment as it stands on the verge of its “Merge”, expect­ed to final­ly hap­pen lat­er this month, when it under­goes a rad­i­cal shift to a sys­tem where the cre­ation of new ether tokens becomes far less ener­gy-inten­sive. read more 

Reuters Graph­ics

BURNED BY CRYPTO

For longer-term investors in tra­di­tion­al assets such as stocks or bonds, nar­row­er swings in prices may seem like a pos­i­tive. But for many investors and major cogs in the bit­coin and cryp­to econ­o­my, that’s not the case. Exchanges, for instance, make mon­ey by charg­ing fees on trades; when volatil­i­ty falls, trad­ing activ­i­ty tends to evaporate.

For cryp­to hedge funds, which tend to trade on swings in price, sta­bler val­ues also offer dimin­ish­ing chances to profit.

So what’s behind bit­coin’s fall in volatility?

For one, an investor flight from the broad­er cryp­to space, mean­ing few­er peo­ple are will­ing to trade their coins.

Cryp­tocur­ren­cies have endured a tor­rid year as investors have dumped risky asset across the board in the face of ris­ing infla­tion, with bit­coin falling about 60% and ether drop­ping 55%. Major blow-ups at two major coins and the bank­rupt­cy of a big-name lender have also erod­ed con­fi­dence in the sector.

The dol­lar val­ue of bit­coin trad­ing vol­umes on major exchanges over a 7‑day peri­od has fluc­tu­at­ed between $127 mil­lion and $142 mil­lion, accord­ing to data from Blockchain.com, the low­est lev­els since Octo­ber 2020. Sim­i­lar­ly, trad­ing in bit­coin futures is at its low­est lev­els since Novem­ber 2020, data from the Block showed.

“The most ele­vat­ed lev­els of volatil­i­ty typ­i­cal­ly coin­cide with the great­est lev­els of inter­est in cryp­to,” said Ouel­lette added. “Peo­ple got burned and are say­ing ‘I don’t real­ly care about cryp­to right now’.”

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Report­ing by Lisa Pauline Mat­tack­al in Ben­galu­ru; Edit­ing by Tom Wil­son and Pravin Char

Our Stan­dards: The Thom­son Reuters Trust Principles.

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