The volatility of the second largest cryptocurrency should return to normal thanks to these factors
- Three sources of action
- Bitcoin May Face Some Selling Pressure
Ethereum has been stagnating in the market for the past 12 days, most likely due to non-existent open interest in derivatives and a high level of fear among retail traders and investors. However, next week everything can change, and here’s why.
Three sources of action
The first factor that investors should consider as a potential source of Ethereum volatility next week is the asset’s historical volatility. According to the indicator, Ethereum’s volatility has fallen to its lowest level in a month, which could lead to an upward reversal of the asset’s volatility next week.
In technical analysis, unusually suppressed volatility is a sign that an asset is about to jump in either direction. Unfortunately, volatility-based indicators cannot be used to predict the direction of asset movement in the foreseeable future.
However, unusually low volatility is not the only thing investors should look out for. On November 30, the CEO of the infamous FTX exchange will speak at the DealBook Summit. While the appearance of the SBF at the event is already exciting news, investors should be prepared for the sudden burst of volatility caused by breakouts that Bankman-Fride could bring to the event.
Ethereum was one of the largest holdings of FTX, so the second largest cryptocurrency in the market faced selling pressure as soon as the market panicked.
Apart from the low volatility of Ethereum and the upcoming SBF results, open interest is another factor we need to pay attention to. Derivatives are the main source of volatility and price changes for any asset in the cryptocurrency market.
The volume difference between the spot and derivatives markets for assets such as Ethereum and Bitcoin is huge, which is why futures, options, and other financial sub-products are considered the main driver of the market.
Recently, open interest in Ethereum derivatives hit a one-month low, suggesting that investors are still too afraid to access the asset leveraged. However, this low open interest is mostly temporary, especially towards the end of the month.
Bitcoin May Face Some Selling Pressure
If we exclude the FTX crash from the story, all macro indicators hint at a recovery in high-risk assets, including Bitcoin. The US dollar chart confirms this thesis.
Compared to other foreign currencies, the US dollar has lost over 7% of its value in the last 40 days. The rise of alternative investment vehicles such as gold shows how important a weak US dollar is for all types of assets. With less attractive rates and weak performance of the world’s largest currency, investors are tempted to look for alternative ways to invest their funds.
However, the crypto industry has nothing to gain from the weakness of the US currency due to a crisis of confidence among institutional investors who will think twice before returning to the digital asset industry after the collapse of FTX.