Volatility is at its lowest point, the dollar index is rising, what’s next?[Column]| coindesk JAPAN | Coindesk Japan

It’s hard to characterize 2023 for both equities and crypto as we’re nearly half way through. Both domestically and internationally, the debate over the macroeconomic environment continues, with analysts scratching their heads over the next big move.

When I wrote about the US banking crisis in March, crypto assets were hitting new year-to-date highs as a safe haven asset and a hedge against a financial meltdown. But since then, almost all news has been dismissed as unimportant.

In the face of banking instability, the Russia-Ukraine war, a 0.25% rate hike in May, a looming global recession, and the US debt ceiling (albeit agreed upon), crypto assets (and equities) are typically It doesn’t seem interested in traditional stories that investors respond to.

On the trading side, both realized and implied volatility have reached all-time lows. Bitcoin (BTC) has narrowed its two-week range to 6.3% to 42.1 at 30-day Realized Volatility, while Ethereum (ETH) remains in a 7.1% range at 41.9 at 30-day Realized Volatility. there is

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Traders are betting that the current situation will continue to benefit from the continued decline in volatility. Traders may be right, given that major market makers like Jane Street and Jump Capital are reportedly pulling back from crypto trading.

US dollar index rises

But is it really that simple? “Sell volatility in May and walk away”? , or are traders ignoring signs that could push Bitcoin and Ethereum out of their recent ranges?

The June 1 debt ceiling deadline has emerged as a volatility event. A default would send shockwaves through markets around the world.

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That uncertainty has priced in risk in bond markets, with 2- and 30-year bond yields soaring in May. Also, the US Dollar Index (DXY) started a strong double-bottom rally from the 101.0 level.

Staying above this level in general is not good for Bitcoin. If you look closely, you can see that Bitcoin and DXY are inversely correlated.

Needless to say, the recent calm in Bitcoin and Ethereum volatility should not give market participants a false sense of security.

Volatility may rebound sharply as the winds of macroeconomic change continue to blow and undervalued stories begin to move. For example, if the “longer, higher” story of rate hikes continues, we can expect the US Dollar Index to persist above 101, putting continued pressure on crypto assets.

Mr. Nathan Cox: Chief Investment Officer of Digital Asset Investment Company Two Prime.

｜Translation: coindesk JAPAN
｜Editing: Takayuki Masuda
｜Image: TradingView
｜Original: Sell Crypto Volatility in May, and Go Away?