Bitcoin is moving sideways after a major bear assault took it below its 2021 low. The first crypto by market cap seems to be displaying short-term low volatility and could see further downside, according to market participants’ expectations.
At the time of writing, the first crypto by market cap trades at $30,400 with a 1.5% profit in the past 24-hours.
The crash in the price of Bitcoin was triggered by a shift in the U.S. Federal Reserve (FED) policy. The financial institution has begun tightening its monetary policies after years of low-interest rates and high liquidity across the markets.
According to a recent report from on-chain research firm Glassnode, Bitcoin entered bear market territory in 2021. At that time, expectations of higher interest rates from the FED saw an uptick.
The firm believes that May and July 2021 selloff was the “genesis” of the current bear market. This coincides with a dropped in the Compound Annual Growth Rate (CAGR) for Bitcoin and Ethereum.
This metric is used to measure returns and has been on a decline every year since BTC became a tradable asset. The recent dropped in BTC’s returns, the research firm said, is worse than when the cryptocurrency crashed from the mid-area around $50,000 to $42,000.
As seen below, Glassnode claims this dropped in CAGR or returns coincides with the starts and ends of BTC bear markets. In terms of returns, May-July 2021 behaved similarly and even recorded a steeper decline than today’s negative 30% drop in this metric.
If history is to repeat, Bitcoin should see some relief in the short term. This potential bounce might not mark the definitive bottom of the downside trend.
Players Bet On More Future Bitcoin Downside Price Action
Market participants are expecting this scenario. For the next two to three months, Glassnode noted, there is an increase in the number of put (sell) options for Bitcoin.
The strike prices for these options stand at $25,000, $20,000, and $15,000. Call (buy) options, the research firm claimed, are lower with most bullish traders aiming for a bounce to $40,000 over the same period. Glassnode said:
This suggests that at least out to the middle of the year, the market has a strong preference for hedging risk, and/or speculating on further downside price action.
Over the long term, the options market is bullish. By the end of 2022, players are setting their strike prices at around $70,000 to $100,000.