Crypto Volatility Updates
If you’re reading this, you most likely were aware of the market crash that occurred over the weekend. Close to $3 billion in crypto positions were liquidated in the span of a few, very long days as fear crept into both Bitcoin and the Altcoin markets. At the time of writing this piece, the crypto markets are gradually getting a lot more stable; however, given the unexpected nature of the last few weeks, nothing is a surprise, and investors need to ensure they protect themselves from any market movements that can impede their portfolio.
Quoting legendary investor Warren Buffet, “It’s only when the tide goes out that you learn who has been swimming naked”.
This week’s takeaways:
-The crypto volatility index reached a high of 97 on Sunday, December 5th; slightly higher than the previous week’s high
-Volatility was trending lower until Friday, December 3rd when it rapidly picked up momentum
-While there has been increased market volatility in the past few weeks, it is in no way close to what we experienced on May 23rd, 2021 when the CVI reached a peak of 168.
Humans tend to have an innate ability to focus on the present and rationalize current hardship or stress compared to events from the past. While this is a good mechanism to ensure short-term survival, it could hinder long-term growth.
Looking at the crypto markets over the past few days, we can be forgiven for thinking that the markets have never been this volatile and unpredictable. Meanwhile, taking a deeper dive at data from the CVI, it is clear that crypto markets have seen implied volatility that was comparatively 70% higher than experienced over the weekend (as measured by the crypto volatility index). This could mean that traders view this volatility period to be more in the short to medium term.
The markets are volatile for sure, but it’s in no way as high and unpredictable as it once was — this might be part of the evolution of the crypto markets as digital assets like Bitcoin and Ethereum gradually reflect investor sentiment on the overall economic and market conditions. We have already started to see a lot of correlation between Bitcoin and the larger Altcoins with the traditional indices like the NASDAQ.
At the same time, it is important to note that in periods of extreme panic, almost all tradable assets share the same characteristics as investors downsize on risk — so maybe, last weekend was just one of those instances. Only time will tell.
The CVI Index, which measures current and projected market sentiment, was slightly higher on average compared to the last week of November 2021. We saw two significant peaks on Saturday, December 4th, and this continued into Sunday, December 5th.
There was a slight rebound in risk on Monday, December 6th, before a considerable drop into Tuesday and Wednesday.
It was a similar case with the ETHVI index, which measures the 30-day implied volatility of Ethereum. There was slightly reduced volatility in the ETHVI on Sunday, December 5th — otherwise, both indices experienced similar fluctuations.
Looking ahead, investors should ensure they continue to remain dynamic and employ strategies that will ensure profit maximization in the current markets.
The alpha is always present in unpredictable times like this, we just have to find it!
A few things that we noticed this week
- TVL in DeFi remains strong at over $250 billion
- CVI launched its Volatility Tokens earlier this week — they are now available on the CVI platform as well as secondary marketplaces! Learn more here.
- Etherum’s Vitalik Butern recently teased a roadmap, Endgame, read it here.
- COTI Group rounded up its NFT game — one lucky winner received a very generous prize of 1,000,000 $COTI — watch the replay here.
Until next week!
The CVI Team