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Bitcoin's Trading Range Narrows to Tightest in Months
Tighter price ranges result from markets running into competing influences. Eventually, some narratives take the back seat, paving the way for a volatility explosion.
Updated May 22, 2023, 2:24 p.m. Published May 22, 2023, 7:22 a.m.
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The crypto market has become boring, with bitcoin , the world's biggest digital asset by market value, settling into the tightest price range for months despite lingering concerns about the stability of U.S. regional banks and the country's debt ceiling.
The range, or the difference between the high and the low reached in the seven days to May 21, was 3.4%. That's one of the narrowest in the past three years and comparable to lackluster trading seen at the start of the year, for a brief moment last month and in July 2020, according to data tracked by analytics firm Glassnode.
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"It is comparable to Jan. 2023, and July 2020, both of which preceded large market moves. This suggests high volatility is likely on the horizon," Glassnode tweeted early Monday.
Recently, options-based volatility measures for bitcoin and ether also hit record lows.
Narrow trading ranges indicate that neither bullish nor bearish perspectives dominate the price action. That typically happens when markets face competing influences and narratives. While lingering U.S. banking sector issues favor the upside in perceived haven assets like bitcoin, the unresolved deadlock in debt ceiling negotiations and the recovery in the dollar index suggest otherwise.
Eventually, some influences take a back seat, leading to a sharp widening of the trading range or a strong move in either direction. Traders typically set up price-agnostic strategies like straddle and strangles when anticipating an exit from tighter trading ranges.
Bitcoin traded near $26,830 at press time, according to CoinDesk data.
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Rampant speculation on crypto derivatives platforms is fueling volatility and risking bitcoin’s image as a stable hedge, says BlackRock’s digital assets chief.
What to know:
- BlackRock digital-assets chief Robert Mitchnick warned that heavy use of leverage in bitcoin derivatives is undermining the cryptocurrency’s appeal as a stable institutional portfolio hedge.
- Mitchnick said bitcoin’s fundamentals as a scarce, decentralized monetary asset remain strong, but its trading increasingly resembles a "levered NASDAQ," raising the bar for conservative investors to adopt it.
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