Spot ETFs are expected to boost Bitcoin overnight? Is the outlook still in doubt?

Suddenly, a bull market came overnight. Last night and this morning (October 23-24), Bitcoin suddenly rose sharply, reaching a high of nearly 36,000 US dollars. The maximum 24-hour increase was more than 15%. Ethereum also broke through 1,800 US dollars at one point, setting a recent high.

At the same time, the volatility that had been hovering at a low level for a long time suddenly soared - Deribit's BTC volatility index (DVOL) rose from around 39.2% on October 18 to 53.96% this morning, returning to the normal range before June this year.

Volatility bottoms out

Volatility is the rate at which the price of a specified asset rises or falls over a certain period of time, which is an indicator of the degree of change in asset prices.

From the historical data, Bitcoin has always been a highly volatile asset, but since the second half of this year, the volatility index of the Bitcoin market has continued to converge and decline, strangely falling to a historical low:

Since June, the volatility of the entire crypto market has been declining. After falling below 40%, it has been hovering at a low level for a long time, until it hit a new low in mid-August.

On August 12, the daily fluctuation range of Bitcoin price was less than US$100, fluctuating between US$29,381.56 and US$29,481.35 (Binance USDT trading pair data, the same below); the daily fluctuation range of Ethereum price was less than US$8, fluctuating between US$1,846.08 and US$1,854.01.

This is an extremely rare situation in the history of Bitcoin and the entire crypto market, indicating that market liquidity is almost exhausted and users' willingness to trade is very negative.

Derbit data shows that on August 12, the current 15-day historical (annual) volatility of the BTC index dropped to 20.608%, and Deribit's BTC volatility index (DvOL) also dropped to 31.32, a new low since March 2021.

On the same day, Deribit’s ETH volatility index (DVOL) also fell to 30.12, hitting a new low since March 2021.

The extremely low volatility also indirectly confirmed the depletion of liquidity, and the market then experienced another historic drop on August 18.

Before this round of surge, Bitcoin's volatility had been hovering at a low level. The BitVol (Bitcoin volatility) index launched by financial index company T3 Index and Bitcoin options trading platform LedgerX fell to 39 on October 15.

It was then stimulated by the fake news from Cointelegraph and moved out of the lows. Combined with the optimistic news about the new spot ETFs in the past two days, it has continued to rise to this day.

In general, volatility represents the views and expectations of market participants on the current and future market. Once it is at a low level, it is likely to usher in huge fluctuations. At least the gains on August 18 and this morning were accompanied by a rebound in low volatility.

Bullish overnight? Shorts slaughtered

Since yesterday, Bitcoin has gradually sounded the horn of upward attack, and this morning, the entire crypto market directly staged a bloody massacre of short sellers, especially Bitcoin short sellers:

Between 6:30 and 7:30 this morning, Bitcoin suddenly rose sharply, approaching the integer mark of US$36,000, with the maximum 24-hour increase of more than 15%. Ethereum also broke through US$1,800. The altcoin market also rose sharply, with tokens rising by 10% and 20%.

This also caused the entire crypto market to suffer a liquidation of more than 150 million US dollars in about an hour, of which more than 80% were short positions, and more than two-thirds were concentrated on Bitcoin. Bitcoin shorts were slaughtered overnight.

CoinGlass statistics show that in the past two hours, the market has liquidated about $1 billion in Bitcoin open interest, which is also the largest short liquidation event so far this year.

At the same time, behind the price increase, Bitcoin's premium also rebounded rapidly. Data from on-chain analysis company CryptoQuant showed that Bitcoin's Coinbase premium index once soared to above 0.4, reaching a high of 0.5, setting a new high since March 12, 2023.

The Coinbase Premium Index of Bitcoin refers to the percentage difference between the Coinbase price and the Binance price in US dollars. The higher the premium, the stronger the buying power of American investors in Coinbase.

Where will the market go in the future?

The reversal of market sentiment seems to have happened overnight. Overall, the current market optimism is still mainly focused on the expected game of "spot Bitcoin ETF".

However, the recent pessimistic dimension is not uncommon, and if we count the recent news or capital information in the market, we will find that before this round of rally, the market almost fell into a vortex of pessimism:

First, an insider disclosed that Parity Technologies, the Polkadot development organization, had laid off more than 300 people, and then Parity Technologies denied it (but as of the time of writing, the official latest announcement was that more than 100 people were laid off). As the development organization of a leading project, such a large-scale layoff also shows that the cold winter has begun to spread to all aspects of the industry.

Subsequently, even the leading mining company Bitmain was exposed for wage arrears. In addition, the Hashrate Index released a third-quarter Bitcoin production report, which also mentioned that the price of Bitcoin ASIC production machines continued to decline in 2023, and all specifications of survival machine models hit a record low in the third quarter. At the same time, Bitcoin's overall computing power scale and production difficulty have repeatedly set new highs, indicating that the degree of internal circulation in this track has reached its extreme.

As Bitcoin has undergone three halvings, with the block reward reduced to 6.25 and the number of mined blocks exceeding 19 million, it is uncertain whether many block producers in the community who dare to take risks and are willing to invest billions of dollars in the Bitcoin production industry can still follow the old rules and withdraw from this gamble without loss.

Before 2020, "Bitcoin ETF" has always been the main channel for the market to enter the "over-the-counter incremental funds" that the market has been looking forward to. Everyone expects "Bitcoin ETF" to bring in huge amounts of incremental funds, open up the way for traditional mainstream investors to invest in cryptocurrencies, and promote Bitcoin and other products to be accepted on a large scale by Wall Street as much as possible, so that the allocation of encrypted assets can be more widely recognized.

However, since the "open entry" of institutions represented by Grayscale in 2020, it seems that everyone's expectations for "Bitcoin ETF" have been taken over. Now, in the context of the bear market, ETF has once again taken on the leading role.

However, the current news about ETFs is still confusing, especially the previous experience of Cointelegraph, which also proves that the market needs to be cautious about any sudden shocks in the news before the dust settles.

There is no obstacle that cannot be overcome, no mountain that cannot be climbed. The bull market seems to be faintly audible, and the footsteps of the bear market are looming. Remaining cautiously optimistic may be the only thing we can do in this strange market atmosphere.