Fidelity: Bitcoin near two-year high, brace for wild swings

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Bitcoin has been trading at near two-year highs of over $47,000 on multiple exchanges. Although price action has increased, volatility remains low. However, that may all be about to change.

Bitcoin price fluctuations

Analysts said increased activity in derivatives markets and changes in the macroeconomic landscape could lead to increased volatility in the cryptocurrency market.

Chris Kuiper, Director of Digital Asset Research at Fidelity, explain On Monday, although Bitcoin prices have risen 170% in the past year, volatility remains low, but “some participants are quite bullish.”

Bitcoin derivatives indicators, such as perpetual futures funding rates, are approaching levels last seen in the October-November 2021 period.

The funding rate is the mechanism used to ensure that perpetual contracts (which have no expiration date and are forever) accurately track the spot price.

If this indicator is positive, traders with long positions will pay traders with short positions to maintain their positions, and vice versa. High funding rates indicate an overextended market leverage — a situation that preceded Bitcoin’s 5% plunge last week.

If funding rates remain high, market participants expect greater volatility in the future.

Bitcoin futures’ OI (open interest) also increases as the price rises. However, Kuiper noted that deal activity has yet to catch up.

“Things are starting to heat up and more volatility is expected to come.”

Changes in the views of major central banks also pose other risks as activity in derivatives markets increases.

The Federal Reserve (Fed) has indicated that it may change monetary policy in the coming months after raising interest rates for a period of time.

However, analysts at Bitfinex exchange said that the Fed is far from reaching a consensus on when to start cutting interest rates again.

“The Fed’s decision-making process does not appear to be linear.”

Even Fed members have made a number of different predictions, ranging from keeping interest rates current (above 5%) to cutting rates as many as four times this year.

Bitcoin exchange-traded funds (ETFs) will also play a role in the coming months. ETF experts expect the U.S. Securities and Exchange Commission (SEC) to approve a series of spot Bitcoin ETFs, helping U.S. investors gain wider access to the leading cryptocurrency.

Bitcoin is currently trading around $46,698, up 4% in the past 24 hours. In comparison, ETH is down 0.54%, trading just under $2,247.