The price of Bitcoin (BTC) represents two pivotal events on December 1 right after the close of the weekly and monthly candles. The upcoming weekly candle close is especially notable as it could mark the first red weekly candle since late September.
The monthly candle will be significant as it would mark the highest close in Bitcoin’s history if the price remains above USD 13,791.
There are three key factors that can cause Bitcoin’s volatility to rise as the weekly and monthly candle close. The factors are general uncertainty around the BTC price, record high futures trading and open interest, as well as the overloaded weekly chart.
Meanwhile, traders have become cautious anticipating a short term downturn despite the price recovering from around $ 16,500 on Nov. 28.
There are two main trends that can boost BTC’s recovery. First, Guggenheim Investments, a global asset manager with more than $ 233 billion in assets under management, secured the right to invest $ 500 million in the Grayscale Bitcoin Trust.
In the US, where no Bitcoin Exchange Traded Fund (ETF) exists, the Grayscale Bitcoin Trust is the first entry point for most institutional investors. Deribit reported that the news sparked significant buying activity in the options market. The firm said:
Reports from the Behemoth Guggenheim Macro Opps fund seeking to allocate $ 500 million, announced over the weekend, were taken by surprise by short + TA pullback allocators as BTC bounced 2k from lows. The quiet market for wknd options was ignited. Bought Dec Calls, funded by Puts; hedges settled. “
Second, high net worth investors and whales could buy the dip ahead of Monday. In recent weeks, as quantitative traders pointed out, most of the demand came from US buyers.
Some speculate that demand comes from Time Weighted Average Price (TWAP) algorithms, typically used by institutions and funds. As the TWAP algorithms were to be reactivated on Monday, this could increase buyer demand for BTC.
Traders are generally unsure of BTC’s price direction
There is a great deal of uncertainty in the cryptocurrency market right now as traders are divided on where the next price will go.
Some are convinced that BTC likely hit rock bottom over the weekend due to market trends. For example, Avi Felman, the head of trading at BlockTower, said that on Coinbase, the recent downturn caused BTC to move to stronger hands.
Sell-offs during a bull market can become overburdened, especially as traders are often looking for reasons to sell. As such, over-indebted buyers are caught on local summits, leading to cascading liquidations. But BTC often tends to rebound well when traders expect more downside and market sentiment hits rock bottom. Felman explained:
“Decent and extensive Coinbase sales on local soil for the first time, this rally suggests to me that retail is slowly picking up. Pretty clear transfer from weak hands to strong hands in the past 48 hours. Pullbacks in bull markets always give you a present with reasons to sell. “
In addition, several technical indicators indicate that Bitcoin has not been overbought or oversold in lower time frames.
For example, on the daily chart, BTC’s Relative Strength Index (RSI) is around 55. An asset is considered oversold on the RSI indicator if it falls below 35. Hence, Bitcoin is in a tricky position as it is a high time frame. charts, like the weekly chart, remain overbought.
This has led traders to forecast a possible correction on the $ 13,000 to $ 14,000 support range may occur soon. This high level of uncertainty in the market can increase volatility as the new weekly and monthly candles open.
Open interest on the futures exchanges would likely increase again, increasing the likelihood of major price movements.
Whales are getting more active in BTC futures
During Bitcoin’s rally in recent weeks, trading activity on the major BTC futures exchanges has continuously increased. Despite the recent decline, outstanding interest on the major futures trading platforms remains above $ 1 billion. When open interest is high, the chance of a short or long squeeze increases, which can result in large spikes in volatility.
The Chicago Mercantile Exchange (CME), in particular, has seen a noticeable increase in Bitcoin futures trading activity. Interestingly enough, Arcane Research reported that major traders with minimum positions above 25 BTC have more than doubled on the CME by 2020.
The Arcane researchers explained that this trend shows an increased institutional demand for Bitcoin. The increased trading activity on CME, which is geared towards accredited and institutional investors, can cause short-term volatility to increase due to the large size of the trades. The researchers said:
“Major traders have a minimum of 5 futures contracts, which equates to a minimum of 25 BTC (5 BTC per contract). The average in 2019 was 45 major traders with no significant growth throughout the year. However, this number has doubled more in 2020 and we saw a new record of 102 major traders two weeks ago. This is arguably one of the best indicators of increased institutional demand for bitcoin exposure and we already know that investors like Paul Tudor Jones are part of this growing group on CME, currently the second largest bitcoin futures market. “
Although institutional demand for Bitcoin has increased, the futures market remains a major factor in volatility.
CoinTelegraph reported Earlier this week, when BTC fell from $ 19,400 to $ 16,200, largely due to cascading liquidations, more than $ 400 million worth of futures contracts were wiped out on Binance Futures alone.
New weekly candle is a big variable
Bitcoin will see a new weekly candle appear in the next 48 hours, but the variable remains the overbought nature of the weekly time frame.
The weekly chart’s RSI is at 88 and when an asset’s RSI exceeds 75 it is considered overbought. The weekly candle is also significantly above the short-term moving averages (MAs), namely the 5-day, 10-day, and 20-day MAs.
Traders anticipated a correction as the weekly chart is overloaded. It would yield a more sustainable rally if BTC were to consolidate above short-term trading powers as it would give the derivatives market and spot market demand time to catch up.
In addition, Bitcoin’s monthly candle chart is even more overloaded than its weekly chart. The 5-day, 10-day, and 20-day MAs are $ 13,129, $ 10,778, and $ 9,685, respectively, and well below the current market price.
But whether only technical matters will cause BTC to correct in the near future remains uncertain. If institutional buyers, such as Guggenheim, continue to make headlines by entering the Bitcoin market, this could attract additional buyers and retail interest in the short term.
To boot, December has historically been very volatile for the price of Bitcoin. While December 2019 recorded a relatively low level of volatility, there were wild price swings in late 2017 and 2018, including the historically high BTC price of nearly $ 20,000 and the bear market bottom.
If a similar pattern occurs, the BTC price could see a spike in volatility towards the end of the year.