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Kraken Intelligence, our team of in-house research experts, has released its Bitcoin Volatility Report for August 2020.

Key Takeaways

• A surge in July volatility trickled into August, driving annualized volatility up to an intra-month high of +60% and causing month-over-month volumes to jump +53%.

• Bitcoin remained in range between $10,590 and $12,480 for the month, before finishing up +3% at $11,657. This resulted in the weakest monthly positive return since 2017.

• Bitcoin’s strong, positive correlation with the S&P 500 and gold persisted into August and climbed as high as 0.84 and 0.97 before plunging to -0.02 and 0.25, respectively. The ascension of Bitcoin’s correlation with gold to 0.97 marked an all-time high.

• A rally to an intra-month high of $12,480 coincided with Nasdaq-listed MicroStrategy announcing a $250 million Bitcoin purchase as part of a new “capital allocation strategy,” Berkshire Hathaway purchasing a majority stake in Barrick Gold mining company and gold rallying to an all-time high of $2,075/oz.

• A number of lesser-known market dynamics suggest incremental volatility is likely on the horizon. For example, annualized volatility reverted to the mean after falling as low as 15%, while U.S. equities continued to climb. This coincided with a multi-year low for Bitcoin’s dominance and a record number of BTC remaining untouched for over a year.

What to Watch for Next?

• Negative Returns in September: Historically, September is Bitcoin’s worst-performing month, with an average return of -7%. With Bitcoin underperforming its average monthly returns for most of the year, we could see returns below -7%.

• The Suppressed Pocket: Twelve times in the past, Bitcoin’s annualized volatility bottomed between 15% and 30% before climbing, on average, to 140% and returning +196% over 94 days. As of the end of August, 38 days have passed since the volatility low of 23% set on July 24, with volatility rising to 44% and price gaining +25%. So, history indicates that we may have ample room for higher volatility and gains in the months ahead.

• Bitcoin Dominance: Alternative cryptocurrencies have been stealing market share from Bitcoin since the start of 2020, especially with the emergence of DeFi in Q2. While this trend may continue, we could see an eventual rotation back into Bitcoin amid a reclamation of dominance.

• The 1+ Year HODL Wave: As of August 31, a record 63% of Unspent Transaction Outputs (UTXOs) on the Bitcoin blockchain have not moved in +1 year, indicating that an unprecedented number of Bitcoins are in the hands of long-term holders. Historically, this dynamic has foreshadowed a new bull market.