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Bitcoin volatility hits 2022 low as analysts predict ‘explosive price movement’

Bitcoin consolidated around the $20,000 level after falling from an all-time price high of close to $69,000 in November 2021 (Getty Images/ iStock)
Bitcoin consolidated around the $20,000 level after falling from an all-time price high of close to $69,000 in November 2021 (Getty Images/ iStock)

Bitcoin volatility has fallen to one of the lowest points in its history, leading analysts to warn that major price movements may follow.

The cryptocurrency rose above $21,000 on Friday following a 5 per cent price surge, though remains in the $18,000 to $24,000 range that it has traded within since mid June.

The price consolidation follows a prolonged decline for bitcoin, falling from an all-time high of close to $69,000 in November 2021.

Previous market cycles in 2013 and 2017 saw record-breaking rallies followed by periods of low volatility before the price rebounded again.

“The steep decline in bitcoin’s annualised volatility during October marks the lowest point in the five month price consolidation around the $20,000 level,” Thomas Perfumo, head of strategy at the cryptocurrency exchange Kraken, told The Independent.

“What’s notable is bitcoin’s volatility has also fallen below the current levels of the S&P 500. Traders note that periods of consolidation with declining volatility and volume precede explosive price movement.”

While analysts are divided over which way this movement will be, billionaire investor Tim Draper made a prediction on Friday of bitcoin experiencing a 10-fold price rise over the next year.

Speaking at Web Summit 2022, the venture capitalist said: “By mid-2023, I’m expecting to see bitcoin hit $250,000.”

Similar gains are not unheard of following periods of calm in previous market cycles, with Mr Draper making equally ambitious price predictions in the past. In 2014, when 1 bitcoin was worth around $500, he predicted that bitcoin would reach $10,000 by 2017. It ended up reaching nearly $20,000 by December that year.

Some analysts attribute the price gains to bitcoin’s fixed supply – it is limited to 21 million BTC – which means it is immune to economic measures like quantitative easing.

This has earned it the label ‘digital gold’, with some claiming that it serves as a safe haven asset in times of geo-political and economic turmoil. Others reject this idea, noting its notorious volatility.

“The stock market may have shown more volatility than bitcoin over the last few weeks, but this does not mean it has suddenly become an inflation hedge,” said Dr Martin Hiesboeck, head of blockchain and crypto research at the cryptocurrency exchange Uphold.

“We all thought that bitcoin was going to be an inflation hedge, but it turns out in times of war, the safe haven is still the US dollar, which projects military might more than decentralised computer networks like bitcoin.”

Despite this, Dr Hiesboeck also remarked that recent price action shows clear signs of accumulation on the part of investors, adding, “nothing stands in the way of the next bitcoin bull run”.