Flat Volatility: Weekly Market Review From TokenInsight
Trading Analysis

Flat Volatility: Weekly Market Review From TokenInsight

11 months ago

This week, TokenInsight covers the ever-changing crypto markets.

Low market volatility continues, the downward macro environment has led to a slight decline in the prices of mainstream cryptos. The market's mid-term sentiment tends to be neutral. Major powers' push for sovereign digital currency increases market uncertainty and weakens the upward momentum of asset prices.

As of this Friday, the low historical volatility situation of mainstream crypto prices has been flat for more than one week. The volatility of Bitcoin and Ethereum has remained at around 55 and 80, and there has been basically no significant change in several days (daily historical volatility changes maintain a level below 1%). The implied volatility changes slightly, which is only about 5%.

The shift of investor attention from the crypto market is an important reason for the continued low volatility. On the one hand, in order to promote the process of sovereign digital currency, large countries have tightened supervision and it is difficult for block funds to flow into the crypto market to support asset prices. On the other hand, rising inflation affects market liquidity expectations, leading to a slight decline in asset prices under low volatility. Due to the reasons above, individual investors will turn their attention to traditional commodities and the stock market in the short term, while adopting a "standby" strategy in the crypto market. The common behaviour of a large number of investors has further exacerbated the decline in volatility, and concerns about macroeconomics performance have caused the negative basis of mainstream crypto futures to continue.

Changes in the volatility of Bitcoin (top) and Ethereum (bottom) in the past 30 days. Source gvol.io

This week, major powers' push for sovereign digital currency (CBDC) has brought new uncertainty to the market. In order to strengthen the dominance of CBDC, China, the United States, Europe and other countries/regions have all taken further actions.

  • Attitudes towards cryptos within the US regulators have been repeated. On July 11, the Fed specifically mentioned the surge in crypto asset prices in its overall assessment of the stability of the financial system for the first time, saying that this increase reflects the increase in investor risk appetite. on July 15, Fed Chairman Powell said, The risks faced by cryptos are real, and central bank digital currencies may eliminate the need for stablecoins and cryptos, and cryptos have not become a payment mechanism. The Fed also admitted that its own digital currency is still in the early design stage and cannot judge whether the advantages outweigh the disadvantages, but it hopes that Congress will provide support. In addition, the SEC once again postponed its decision on the Bitcoin ETF until the fall, and the wait-and-see attitude within the institution was obvious.
  • Mainstream developed countries are generally turning to unfriendly attitudes towards cryptos. The UK Financial Conduct Authority (FCA) has pledged to invest $15.2B in a digital marketing campaign to remind young investors to be wary of high-risk investments including cryptocurrencies. The London police stated that “more and more organized criminals are using cryptocurrency to launder money”.The Italian market regulator said Binance has no right to provide investment services and activities in the country. French Financial Market Authority (AMF) stated that cryptos needs to be regulated by the entire European Union.
  • China, India and other countries are once again adopting policy measures against cryptos. Indian lawmakers are preparing to submit a cryptocurrency bill that will prohibit the possession of private crypto in the country, aiming to promote the creation of the Central Bank of India's digital currency (CBDC) and prohibit the ownership of private cryptocurrencies . While further promoting the comprehensive clean-up and shutdown of crypto mining projects in various provinces, China announced the construction of a trade finance blockchain standard system and launched a legal digital currency trial.

The new regulatory attitudes and measures mean that regulators and the government do not want the liquidity released to flood the speculative and risky asset market, but instead flow within the controllable scope of supervision. This will lead to a long-term process of liquidity returning to the digital asset market, which will lead to a decline in the driving force for the market to move upward.At the same time, since most of the bad news from regulation has been digested by the market, in the absence of major policy updates, the macroeconomic situation and internal changes in the crypto market may have a relatively large impact, but they will not change the persistence of low volatility in the short term.

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