The following is an excerpt from a recent issue of Bitcoin Magazine Pro, Bitcoin Magazine premium markets newsletter. To be among the first to receive these statistics and other on-chain bitcoin market analysis straight to your inbox, subscribe now.
Word of the day: volatility
Are you ready for more volatility? It’s common for markets to only become more volatile as we get deeper into bear markets. As uncertainty, illiquidity and impatience grow, more market participants begin to wait for market extremes: either that the market has bottomed out and a new bull cycle is just around the corner from the Federal Reserve or that the downside limit, margin call settlement day is imminent due to a Credit Suisse collapse. Everyone stays on edge with every major market move to give them some sort of signal. Price ranges begin to widen and some weekly or monthly (could be) moves are condensed into a single day of action.
Even arguably one of the greatest investors of all time, Stanley Druckenmiller, considers it one of the hardest environments to figure out today:
“I’ve been doing this for 45 years and between the pandemic, the war and the crazy political response in the US and around the world, this is the most difficult environment I’ve ever encountered to try to have confidence in a six-to-twelve-month forecast before. .”
For most, it is best to stay out of the action and have a large risk position, ready to deploy after the markets have stabilized or calmed down.
We still maintain our view that new lows are likely to be made and that we have yet to come to a final conclusion on the cycle for stocks, risk assets and bitcoin.
We’ll remind readers of the magnitude of the bear market increases we’ve seen so far, and the magnitude of those increases in the analogs of 2000 and 2008. There are other cycles to study and compare, but these are just a few recent examples.
We have already seen a significant 17.41% rise from the SPX lows with bitcoin to $25,000. However, this did not change its subsequent reversal to the downside, and what we think is that the medium-term bearish trajectory still holds. Even in the late-stage collapses of 2002 and 2009, the S&P 500 saw rallies of more than 20% before bottoming out. As the market piles on bloody excessive conditions and doomsday news of higher leverage, remember that there is no such thing as a free lunch.
S&P 500 rises from 2022 lows
S&P 500 recovers from 2007-2009 lows
S&P 500 recovers from 2000-2002 lows
Another interesting point to note is that bear markets are usually short, with an average duration of 10 months. That 10-month benchmark would get us roughly where we are today. However, there is a useful idea and a thesis to make that the current destruction we have seen so far has been about readjustment to a unique and historical moment in rates, bonds and credit. We’ve barely gotten to what it is classic and cyclical earnings bear market.
As global bonds, currencies and stocks have continued to trade with increasing levels of volatility, bitcoin’s recent implied and historical volatility is strangely muted by historical standards.
While bitcoin’s recent lack of volatility could be a sign that much of the bull market’s leverage and speculative mania has almost completely died down, our eyes remain on the outsized legacy markets for signs of fragility and volatility, which could serve as a headwind in the short/medium term.
While the world around bitcoin price action looks increasingly uncertain, the Bitcoin network is completely unaffected at the protocol level, continuing to do its job as a neutral monetary asset/settlement layer, despite its exchange rate volatility.
Tick tock, next block.
Relevant past articles
