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BTC Volatility Report – June 2019

Month-over-Month (MoM) Changes

June was, by and large, a continuation of trends since April; bitcoin’s annualized volatility, trading volume, price, and velocity were all noticeably higher MoM and the highest YTD. Annualized volatility hit a YTD high of more than 73%, but grew a measly 6%. Trading volume amongst peers earned a record 12- month and YTD high of $42.3B and grew at an impressive rate of roughly +24%, largely driven by a renewed interest in the industry. Bitcoin broke through the psychologically significant $10,000 price level for the first time in more than a year and closed out the month just shy of $11,000, representing an appreciation of +27% MoM. Lastly, bitcoin’s velocity hit a YTD and 12-month high of 1.91x.

Asset Correlations

With respect to May, bitcoin’s correlation with traditional financial assets and other cryptoassets were notably more strongly positive in June – USDJPY and GBPUSD were little changed. Bitcoin’s one-month correlation with the S&P500 went from -85% to 58%, gold went from 35% to 91%, U.S. high yield corporate bonds went from -77% to 65%, and EURUSD went from 48% to 63%. The sudden change in correlations MoM can likely be explained by an abrupt change in global market sentiment; traditional financial market participants began discounting a resolution in the US–China trade war and the likelihood of the U.S. Federal Reserve cutting interest rates. Global equity markets rallied sharply in June sending the developed markets up over 6.5% in the month and 17% in the first half of 2019, which is the best start to a year since 1987.

What Happened in June

US Fed Chairman Powell Hints Fed Will Cut Rates If Needed Over Trade Wars & U.S. Fed Officials Believe a Cut to the Fed Funds Rate Would Be Appropriate

On June 4th Chairman Jerome Powell stated that the Federal Reserve was prepared to respond if it decides the Trump administration’s trade conflicts are threatening the U.S. economy. The market read Powell’s remarks as an interest rate cut later this year, which drove stock prices higher and caused the Dow Jones Industrial Average to end the day up more than 500 points. Powell also stated on June 19th that “many participants believe that some cut to the fed funds rate would be appropriate” given slowing global growth, inflation falling short of the Fed’s 2% target, and ramifications of the US-China trade war.

A lower interest rate environment encourages risk-taking and makes risky assets, such as stocks and cryptoassets, more appealing than fixed income products that would generate a lower return. A change in tone from the Fed can perhaps explain bitcoin’s elevated volatility and trading volume in June.

Facebook Unveils Libra Project with Backers Such As Uber, Visa, and Paypal

Facebook (FB) released the white paper for its global stablecoin, dubbed “Libra”, on June 18th. Many remain skeptical of Facebook’s Libra project, but the broader market seemed to interpret Libra as a net- positive for bitcoin and the cryptoassets industry. With Facebook having more than 1/3 of the global population on its platforms (Facebook, Instagram, and WhatsApp), Facebook’s cryptocurrency will act as an on-ramp for broader cryptocurrencies and bitcoin adoption. The mass coverage of Facebook’s Libra release translated to renewed media coverage of bitcoin, which could have attributed to late June’s rapid spike in price and volatility.

Bitcoin (BTCUSD) Surpasses $10,000

After trading below $10,000 since March of 2018, bitcoin surpassed the psychologically significant and notable price level of $10,000 in late June. Human’s innate bias for round numbers and bitcoin’s dramatic spike in price likely triggered FOMO, resulting in buying pressure that fueled bitcoin’s surge in price and volatility for the month of June.

Bitcoin (BTCUSD) Achieves YTD High of $13,800, Drops $1,700 in 15 Minutes

After hitting a YTD high of $13,800 and trading up as much as +18% intraday on June 26th, bitcoin’s momentum came to an abrupt end. In more than 15 minutes bitcoin’s price fell more than $1,700 and traded as low as $10,300 that day. Although it remains uncertain as to whether bitcoin’s recent parabolic run has come to an end, the buildup of bullish momentum hit a ceiling and resulted in a significant price correction and jump in volatility.

Crypto Fear & Greed Index

The Crypto Fear & Greed Index is a sentiment index that measures crypto market sentiment on a scale of 0 (“extreme fear”) to 100 (“extreme greed”). The gauge factors in volatility, market momentum/volume, social media, surveys, dominance, and trends. The index can provide insight as to when investors are too worried (extreme fear) and thus a potential buying opportunity, or when investors are too greedy and a market correction is due. It can also be used as a leading indicator as to which direction market volatility may be headed.

When the CFG index experiences sudden transitory shifts, such as going from “fear” to “extreme greed” or “greed” to “fear,” volatility typically moves higher shortly thereafter. These sudden swings in sentiment are often followed by surges in buying or selling that translates to greater volatility. Because sentiment must eventually change, prolonged periods of heightened readings (extreme greed/extreme fear) are bound to correct. With the CFG index having finished in “extreme greed” in June, it’s fair to assume that the pendulum will swing back the other direction imminently and with such a shift will come elevated selling pressure, market volatility, and trading volumes.

Additional Data:

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