KEY POINTS

  • Bitcoin's annualized volatility reached 23%, another record low
  • 10 of past 12 instances of volatility slumps were followed by a price upsurge
  • Kraken believes the next rally could be a price increase between +50% and +200%

Cryptocurrency exchange company Kraken’s new report revealed that recent volatility data could spark a price surge in Bitcoin in the next few months. The report cited the benchmark cryptocurrency’s annualized volatility of 23%, its lowest in the last 21 months.

Based on historical data, there were only 12 instances when Bitcoin’s annualized volatility reached the low levels of 15% to 30%. In 10 of those 12 events, an average of 140% price upsurge soon followed. 

The annualized volatility bottom of 23% on July 24 could lead to a Bitcoin rally somewhere between +50% and +200% in the months ahead, the report indicated.

Usually one of its weakest months, Bitcoin rallied 24% in July 2020, with a 14.5% jump from July 27 to 31 that brought the cryptocurrency from $9,992 to $11,373 in 3 days, Kraken stated. The July 27 rally was more remarkable because Bitcoin plowed past $10,000 to reach $11,000 in 24 hours.

The explosive upsurge did not happen immediately, however, since prior to that was a period of consolidation when Bitcoin stayed within the $9,000 range for 2 months. That two months is a period of low volatility slowing to 23% on July 24. Thus, Kraken concluded that 44% of July’s trade volume came about in the last week of the previous month.

Kraken noted the key events last month that serve as catalysts for the Bitcoin uptrend, including the stimulus package and the announcement from the Office of the Comptroller of  the Currency (OCC) that approved all federal chartered banks to provide cryptocurrency custody to its clients. The correlation with gold is also evident, as the shiny metal closed above $1,900 days before the Bitcoin rally, Cointelegraph reported.

The crypto exchange’s research did note that August has been the second worst performing month for Bitcoin with an average return of +2%. However, since Bitcoin just had one of its lowest volatility bottoms, the company expects a price rally soon.

Kraken also examined Bitcoin’s recent break out from the pennant pattern formation that began in 2017.

“Nearly 2.5 years later, Bitcoin finally broke up and out of the pennan pattern formation in late July -- signalling the start of what many believe to be the next bull market cycle. Still, the exchange warned of more volatility because Bitcoin has only been above $11,000 for 2.5% of its life,” the company stated.

bitcoin An Israeli holds a visual representation of the digital cryptocurrency Bitcoin, at the 'Bitcoin Change' shop in the Israeli city of Tel Aviv on January 17, 2018. Photo: JACK GUEZ/AFP/Getty Images