Last week’s 11.4% drop in Bitcoin (BTC) may have seemed unexpected or completely out of the ordinary. The truth is that the lack of a more substantial correction since the 50% drop on March 12th was the unusual part.
Some analysts and investors have said that DeFi’s current boom was an unmistakable sign of excessive optimism, as some newly launched tokens quickly reached a market capitalization of $1 billion.
However, unlike the 2017 ICO frenzy, where most projects were not even able to launch their core network, most of today’s DeFi tokens already have a product in place.
Regardless of the strengths and weaknesses of each project, it is important to focus on broader market indicators to look for predictive signs of possible collapse.
Why is the dollar so strong?
Bitcoin’s volatility was relatively docile
Bitcoin’s realized volatility measures how large the daily price fluctuations are, and greater volatility indicates that the price can change dramatically over time in any direction.
This indicator may sound contradictory, but periods of lower volatility represent a more significant risk of explosive movements. This is partly because realized volatility is a lagging indicator. During quieter periods, traders tend to over leverage, resulting in more significant liquidations during sudden price movements.
The skewed data shows that Bitcoin’s 90-day volatility was 42% on September 1st, near its lowest levels since 2017. On its own, a period of quiet volatility isn’t an indicator of an upcoming dump.
Volatility doesn’t differentiate between bullish and bearish markets, as it only measures absolute daily swings. Next, one should focus on Corona Millionaire recent performance to understand current market behavior.
Regardless of which market you analyze, even upward trends of 1,900%, like the one Bitcoin achieved in 2017, had weeks of declines of 5% or more. There were 13 such negative weeks during that incredible year, some of them in early March 5th.
Bitcoin option data shows that traders expect the BTC price to fall soon
Before last week’s 11.4% drop, Bitcoin was up 146% from March 11th. Below are the eight-week floors and ceilings during that period.