Crypto-versed: prices slide despite low volatility

Crypto prices have slipped despite volatility remaining subdued.

In this week’s Crypto Verse, we look at Bitcoin volatility, survey risks that could spark the next move in crypto assets, and analyse the charts of three crypto products you can trade on the IG platform.

Low volatility defies looming risks

Crypto volatility has remained subdued in recent weeks but despite this, prices have generally drifted lower amidst a lack of new catalysts in the market.

Although it is yet to hit the remarkable lows of late 2022, realised volatility in Bitcoin is trading at historically depressed levels. The indicator is at 1.65 and is below its 52-week moving average, as volatility in the asset class trends south.

The lack of volatility has also weakened crypto asset correlations, with the correlation between Bitcoin and Ether falling to lows not seen since 2021 this week.

Bitcoin historical volatility index

The lack of volatility comes despite abundant risks circulating in the markets and mirrors the lack of price movement seen in other asset classes.

Traders have their eyes on potential circuit breakers in the weeks ahead. Economic data is still closely watched as markets assess the Fed’s policy outlook, while issues in US banks and the US debt ceiling could raise financial stability concerns.

Does the debt ceiling debacle help or hinder crypto?

The clock is ticking on the US debt ceiling as the US Treasury nears the so-called “X-date” after which it will no longer be able to pay its bills. The US Government hit its statutory imposed limit on new debt earlier in the year.

However, owing to several “extraordinary measures” implemented by the Department of Treasury, the Government has managed to meet its obligations and continue to function.

It is estimated that the money will finally run out at some point at the start of June. The US is at risk of defaulting on one of its obligations after that point; government activities will also grind to a halt.

The impacts of a US default on financial markets would be far-reaching.

An unanswered question is whether such an event would be positive or negative for crypto prices. On the one hand, a default would bring huge uncertainty and undermine trust in the financial system, sparking a flight to anti-fiat assets like Bitcoin, and perhaps other cryptos.

However, a default would wreak havoc in funding markets, drive short-term rates higher, and stifle liquidity. This would be an unfavourable set of fundamentals for crypto, which relies on ample liquidity and is arguably a risk proxy.

Three cryptos to watch

• Bitcoin

Bitcoin's price continues to fade from its recent highs above 30,000.

That level stands as a key level of resistance, while a break below $27,200 support has turned that level into a new resistance level. Buyers appear to be defending the 100-day moving average, while another key level of support could be found around 25,000.

Bitcoin daily chart

• Ether

Ether's price has held up better in recent weeks.

The crypto has edged higher, although is dealing with the same loss of upside momentum. An uptrend remains in place, with the price carving out a descending wedge continuation pattern.

Dip buyers have also emerged below the 50-day MA, while a formidable level of support appears to be around $US1720.

Ether daily chart

• ETH/BTC

With correlations loosening, the ETH/BTC ratio has been edging higher. The pair is in a downtrend.

However, a series of higher lows suggests a possible bottoming is taking place. Downward sloping resistance stands as the key level to watch in the long term.

ETH/BTC daily chart