Every week, we will share our take on crypto volatility trends, trading and highlight relevant market sentiments reflected through the CVI.
This week’s takeaways
-The crypto volatility index reached a 2-month peak last Friday, November 19th, 2021
-Volatility in the crypto markets is still above the 2021 historical mean
-There are lots of unique volatility trading and profit-taking opportunities in the current market
Market Movements
One of the most significant events last week was the dramatic price swing of Bitcoin. On Friday, November 19th 2021, Bitcoin dropped to $55,705, resulting in a mass liquidation worth approximately $900 million. For all the FUD talk over upcoming regulations, this price drop seemed to have caught most market participants off guard.
Altcoins were not spared and saw massive price fluctuations, with Ethereum down close to 6% on the week. At the time of writing, the broader altcoin market is a lot more stable and has recovered some of last week’s losses, while Bitcoin remains below $60,000 (as of November 24th, 2021).
Volatility Index
The CVI Index, which measures market sentiment, reached its 2-month peak at 98.25; the last time it got this high was on October 20th, after the Bitcoin Exchange Traded Fund (ETF) launch.
Overall, the “fear” sentiment in the market has been increasing, with the Index remaining above the 91 range since November 15th.
Given this increased volatility, there are lots of strategies that can be employed to ensure both risk management and profit-taking. The frameworks driving this point of view are as follows:
- The mean reversion framework can be applied to the CVI Index. In periods of high uncertainty (like last Friday), the Index moves away from its mid-long term historical price and re-adjusts after an appropriately priced market sentiment.
- Short-term profit-taking can be realized by identifying when to go long or short in the volatility markets. Volatility is not a one-way street and does not only occur when asset prices drop; it is simply a measure of price fluctuations (i.e., both high and low).
As of November 22nd, 2021 — volatility in the crypto markets is still above the 2021 historical mean.
One major takeaway: Understanding that the Volatility Index is an investment instrument or vehicle, rather than just a “fear” sentiment, can lead to unlocked opportunities for traders. If the Index has historically hovered around the mean, timing the entry point to long/short can lead to short-term alpha and a portfolio hedging mechanism.
Crypto Markets Ahead
Total value locked (TVL) in DeFi is back to $100M+
CVI has completed its migration from USDT to USDC and launching the ETHVI index.
COTI Group partners with SundaeSwap Labs to explore integration of Cardano-based stablecoin, Djed
Until next week!
The CVI Team
