Crypto Volatility Updates
The last few weeks of December seem to have been challenging for most investors. Reading the markets to know precisely the direction it’s heading is a lot tougher given the recent price swings we have been experiencing. On the other hand, while still in some form of uncertain state, forward-thinking investors have employed strategies that mitigate any market movements that will impede their portfolios. The beauty of risk management tools like the CVI is that they can be employed irrespective of market conditions — there will always be profit-taking strategies.
In volatile markets like these, the alpha is even more present!
This week’s takeaways:
- The crypto volatility index reached its lowest point (65) in 14 months.
- There was limited week-over-week risk run-up; the highest point on the CVI for the past week was 73.
- Observing the 1-month trend on the CVI, it is clear that sentiment on volatility has been on a decline since mid-December 2021.
Volatility is present in the current crypto market cycle. By any means of market measurement/analysis, it will be difficult to ignore the increased week-over-week volatility we are currently experiencing. Just like we mentioned last week, in times of uncertainty (such as the ones we are currently experiencing), almost all tradable assets share the same characteristics as investors downsize on risk.
There has been increasing market volatility across the traditional asset space, with US stocks falling ahead of the inflation news and weaker earnings across some technology stocks. These factors have a significant impact on crypto markets. As institutional investors continue to add Bitcoin and major altcoins to their portfolios, the correlation between the crypto markets and indices like NASDAQ increases, given the concentration of holders across both asset classes.
While we are yet to reach and cross the 100 mark on the CVI, we have come a few points close to this number.
The CVI Index, which measures implied sentiment and volitility, was considerably higher on average compared to the first week of December 2021. We saw a peak of 99.28, one of the highest points we have reached in the CVI since October 2021. This point correlated with the huge drop in Bitcoin’s price, where it reached a low of 45,894 and a trading volume of about $1.3 billion.
Looking at the ETHVI index, which measures the 30-day implied volatility of Ethereum. There were similar risk trends, with the ETHVI reaching a one-month peak of 114 on December 13th. Using trend analysis, the ETHVI seems to be hovering around the 110 range, and it will be important to monitor this movement in the coming weeks to see if/when we break out.
As we close out the year, there is no doubt an increasing level of uncertainty in the crypto markets. One consolation, however, is that the crypto markets have come a long way from the “free-for-all” volatility/uncertainty we once experienced a few years ago. Despite significant efforts to impede the advancement of crypto markets, things have still held a lot stronger and there are still lots of new and exciting opportunities in today’s crypto markets.
Again, just like we said last week:
“The alpha is always present in unpredictable times like this, we just have to find it!”
A few things that we noticed this week
- COTI launched a new partnership with ADA Handle. Through this, COTI will support Handle address resolutions through its ADA Pay platform — learn more here
- Avalanche is adding USDC to its ecosystem. More info here
- CVI has partnered with KuCoin to launch a trading competition — selected winners stand a chance to win $30,000 in $GOVI. Read more and apply here
Until next week!
The CVI Team
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