It has been one of those weeks in the digital asset industry where Bitcoin’s price hasn’t been able to sustain consolidation at any price range. Since March 12th, Bitcoin has registered valuations of $7900, which then dropped to $4770, came back up to 5900 again and then $3800 become the new low of 2020.Such transitions were causing massive changes to Bitcoin fundamentals and its volatility index was one of them.
According to Kraken’s recent Volatility Report, February has been one of the most turbulent months in the past six months, with BTC rising to $10,500 at one time. The bearish downturn began after February 14th, when Bitcoin depreciated about 21 percent from its high, all the way below $9,000.
But the worst was yet to come. After the initial bullish rally in March, Bitcoin succumbed to the traditional market crash pressure and, along with other major stocks such as DJI and S7P 500, Bitcoin had its worst dip in the last seven years.
Bitcoin and S&P 500 correlation started earlier than March
Surprisingly, according to the report, Bitcoin’s network usage has escalated over the past few days since the collapse, bitcoin’s annualized volatility was up by almost 10 percent to 13.3 times since the start of 2020.
However, the major point highlighted in the report was Bitcoin’s correlation with the S&P 500.
Bitcoin’s safe-haven characteristic has taken a massive turn in the past few days as the supposedly’ uncorrelated’ asset continued to follow the line of traditional stocks on its way down. Bitcoin and S&P 500 have registered their highest correlations over the years, but according to the report, they have begun to spike towards the end of January.
The report stated,
“Bitcoin was notably more strongly positively correlated with traditional risk assets and more negatively correlated with traditional safe-haven assets; bitcoin’s 1-month correlation with the S&P500 went from 0.28 to 0.83 and from 0.70 to -0.37 with respect to gold.”
The above scenario highlights another crucial factor which can be the fact that Bitcoin had a higher correlation with traditional stocks due to institutional involvement. The community may have overlooked the presence of institutions in Bitcoin and these entities may have held more Bitcoin than expected by the space.
Such an arrangement logically explains the collective collapse of Bitcoin and traditional stocks and Bitcoin’s decoupling from gold, which is suppose to adhere to the same characteristics as Bitcoin.
Bitcoin Implied Volatility reaches new high
Speaking about the present volatility of Bitcoin, the largest digital asset continued to embroil a state of severe turbulence as its implied volatility recorded a new high over the past year.
Implied Volatility largely explains the expected volatility in the market with respect to past performance and at the moment, the VIX( Volatility Index) was above 80 since March 17th.
Although a positive scenario could surface for Bitcoin, considering higher volatility meant a bullish price swing may allow it to scale higher again, the bearish outlook of the market continued to cast a shadow over Bitcoin which remained significant at press time.