Traders Brace for Major Volatility as Bitcoin Price Nears Record Highs

Bitcoin traders expect a significant increase in volatility as the leading cryptocurrency continues to recoup nearly all its losses since topping out just below $20,000 in late 2017. Whether the volatility comes from increased buying or selling is a matter of disagreement.

Through bitcoin’s current rally, volatility has remained low. Since late August, 30-day volatility has remained below 0.03 and 180-day volatility has steadily decreased from 0.05, according to data from Coin Metrics.

Over the same period, bitcoin has gained nearly 80% after a brief dip to $10,000 at the beginning of September.

As bitcoin closes in on the much-anticipated all-time-high mark, some responsive selling should be expected, said Mike McGlone, senior commodity strategist for Bloomberg Intelligence, in an email to CoinDesk.

But a “wave of institutional flows appears to be just getting started and offsetting the relative youth of bitcoin's past, keeping its upward trajectory intact,” McGlone added. Any selling at record highs should only “act as a speed bump” to bitcoin’s long-term trajectory, he said.

Regardless of which side of the market investors choose to pile onto, “elevated” volatility in the very near future seems likely, according to Sam Trabucco, quantitative trader at Alameda Research.

Some selling could come from investors looking to realize some paper gains after reaching a historic price level as the number of bitcoin addresses in profit surpassed 98% Monday, according to Glassnode. Not since early December 2017 were there this many addresses in profit on paper.

To Joseph Todaro, partner at Greymatter Capital, reaching a new all-time high will probably trigger significant selling as the market is likely to repeat its reaction to previous all-time highs given that “traders lean heavily on historical price action,” he told CoinDesk in an email.

In 2016, for example, bitcoin’s approach to the then-all-time high was “met with significant sell-side pressure,” Todaro explained. He expects the same response as bitcoin nears $20,000, followed by consolidation and then renewed upward momentum.

The previous all-time high represents a significant inflection point in mainstream interest for bitcoin, said Kyle Davies, co-founder of Three Arrows Capital, in a direct message with CoinDesk. At that point, he expects mainstream interest to accelerate.

But mainstream attention should trigger significant upside volatility, not downward, according to Davies. “We will not see resistance. We will see price discovery,” he said.