Bitfinex Alpha | Bitcoin volatility has arrived as US rates expected to be higher for longer

For over two months, Bitfinex Alpha has been forecasting heightened volatility, and recent events have validated this prediction. Bitcoin’s 24-hour volatility witnessed a staggering 1200 percent spike within a mere nine hours on October 16th, propelled by the asset crossing the $30,000 threshold. On-chain metrics, such as the Spent Output Age Bands (SOAB), further support the notion of sustained volatility in the coming months. 

Bitcoin’s brief soar from $28,000 to $30,000 on October 16th was fuelled by unverified rumours of the SEC’s approval of BlackRock’s iShares Bitcoin ETF application. This surge, however, was short-lived, with the asset retracting to the $28,000 mark, resulting in the largest short liquidations since August 17th, amounting to over $136 million. The initial price escalation was attributed to a flurry of market longs on futures markets, with more than $5.5 billion added within an hour. Yet, this momentum was temporary, with subsequent volatile swings causing in total $187 million in liquidations across long and short positions. Last week’s moves underscore the sensitivity of the crypto market to high volume trades, especially during low liquidity periods. The rapid price movements were not solely due to a short squeeze but were significantly influenced by the market’s immediate response to the spot ETF news. This highlights the market’s susceptibility to major news narratives. Post the $30,000 breach and subsequent dip below $28,000,

Bitcoin has already made two subsequent attempts to reclaim the $30,000 mark, and was ultimately successful on Monday 23rd October.

In last week’s economic narrative, it’s evident that while certain sectors of the US economy have flexed their resilience, others have sent out subtle signals of caution. 

Last week, the 10-year Treasury yield inched closer to its five percent mark – a psychologically significant level that’s not seen in 16 years. With high treasury yields correlated with interest rate hikes, last week’s uptick in yield underlines our expectation that interest rates will be higher for longer.

In the consumer landscape, US retail sales exceeded market expectations. Strong consumer spending not only rounded off the third quarter on a high note but also fueled expectations that the GDP for the third quarter could overshadow the previous one. The labour market also continued to show strength, with unemployment claims for the week ending October 14th plummeting to a nine-month low. Despite the strong unemployment figures, signs of a cooling labour market continue to show.

On the housing front, after the unsettling slump in August, September brought with it a breath of fresh air.  This uptick, spearheaded by the multi-family home construction sector, offers a glimmer of hope, though cautionary notes still persist among market watchers.

In a nod to the growing acceptance of cryptocurrencies, luxury car giant Ferrari has teamed up with BitPay to facilitate crypto payments. However, it’s not all smooth driving in the crypto world. New York’s Attorney General has launched a lawsuit against industry stalwarts: Gemini Trust, Genesis Global Capital, and Digital Currency Group (DCG), alleging a massive fraud of over $1 billion through the Gemini Earn program. 

Finally, we discuss the transformation in El Salvador, two years after it adopted Bitcoin as legal tender.

Happy Trading!

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