Bitcoin price may be settling, but more volatility is on the way, analysts warn

Bitcoin has sailed into calmer waters since the biggest daily decline in almost two months on Tuesday, which saw its price surge to an all-time high of $69,100, before dipping 14%.

The plunge triggered $1.2 billion in liquidations, resulting in the second-most challenging day for traders since the collapse of FTX in November 2022.

Now, traders have a chance to collect themselves as more volatility looms on the horizon, analysts say.

‘Seem quieter’

Rather than causing market-wide panic, analysts and experts say the move was necessary for Bitcoin’s long-term outlook as exchange-traded funds continue to prop up demand.

“Over the past 24 hours, the BTC price has been holding relatively steady, and its trading patterns seem quieter,” Noelle Acheson, former head of market insights at Genesis and author of the “Crypto is Macro Now” newsletter, said on Thursday.

The asset is trading at $67,500, up 0.9% on the day. Following Bitcoin’s recovery back above $66,000 on Wednesday, its price has been trading within a range of about 4.8%.

The calm gives the market room to breathe while investors reassess their positions and strategies, Acheson said.

“It also sets the stage for the next trend, which — given the relative strength of the tailwinds — is likely to be up,” she said.

The moves were necessary to flush out exuberance in derivatives and restore investor confidence, analysts told DL News following this week’s severe price swings.

“Whenever excess leverage builds in a system, it needs a blow-off valve,” Jonathan de Wet, chief investment officer at Zerocap, told DL News on Tuesday.

David Lawant, head of research at FalconX, told DL News that Tuesday’s $381 million washout in Bitcoin and Ethereum derivative long positions was a net positive for market health.

Analysts like de Wet and Lawant posit demand from Bitcoin spot exchange-traded funds is bolstering buying pressure, which far exceeds miners’ ability to supply new coins to the market.

On Wednesday, spot Bitcoin ETFs notched their biggest net inflows, at $648 million, since they began trading on January 11, according to data from Bitcoin ETF provider Bitwise.

That’s despite Bitcoin’s volatility reaching its highest point in almost a year.

In other words, issuers still seem willing to buy Bitcoin to meet demand from their clients, even as Bitcoin ETF purchases recorded a drop of more than 50% from March 5 to March 6.

“These types of sharp corrections are a staple of crypto bull markets, and I see the leverage washout as healthy,” Lawant told DL News on Thursday.

To be sure, Acheson warned earlier in the week that more violent market swings are coming.

“Froth is still with us, which suggests that the volatility will continue,” Acheson said.

Traders have taken increasingly riskier bets on Bitcoin as it moved toward record highs over the past week, adding additional risk and volatility to the market.

Deribit’s implied volatility index, DVOL, which indicates the expected movements in Bitcoin’s price, supports Acheson’s outlook.

The index broke the 71% threshold on Tuesday for the first time since the collapse of FTX. It remains elevated around 69%, suggesting prices will continue to whipsaw.

Crypto market movers

• Bitcoin is up around 0.9% since Thursday, trading around $67,500.
• Ethereum is up 4% on the day at $3,940.

What we’re reading

• European countries roll out crypto laws in race toward MiCA — DL News.
• U.S. Still Seeks Do Kwon Extradition Despite Montenegro Court Ruling — Milk Road.
• Gemini Considered Merger With Genesis Before Bankruptcy — Unchained.
• How an obscure 4chan meme gave birth to a cryptocurrency that went up 1,800% — DL News.

Sebastian Sinclair is a markets correspondent for DL News. Have a tip? Contact Seb at sebastian@dlnews.com.

With additional reporting from Adam Morgan McCarthy and Thomas Carreras.