On-Chain Activity Suggests Bitcoin Price Volatility Will Continue, Thanks to 'Whales'

Bitcoin's price volatility spiked in January and could further increase over the near term because "Whales" have surfaced.

Volatility rose as bitcoin's price rallied from lows near $6,850 on Jan. 3 to a three-month high of $9,570 on Jan. 31.

The cryptocurrency closed out January with 30 percent gains, registering its best January performance since 2013.With the price rally, whales - those buyers of large numbers of coins - seem to have woken from their long slumber.

The number of whale addresses increased from 2,000 to 2,030, marking a transition to an "Accumulation" phase from the "Wait and see" phase seen in the last four months of 2019.Historically, that transition has injected volatility into the bitcoin market.

On similar lines, the spike in price volatility in the second quarter of 2019 was preceded by accumulation by large wallets.

Whale action has also led to big price sell-offs in the past; a bitcoin flash crash from $12,600 to $12,100 in less than 15 minutes on July 9, 2019, was triggered by a massive sell order of 6,500 BTC on cryptocurrency exchange Binance.

According to historical data, volatility tends to rise once the 10 to 100 BTC cohort concludes accumulation.

If HODLers exit the accumulation phase and whales continue to snap up coins over the coming weeks, the demand supply-imbalance could worsen, resulting in a big jump in volatility.

That does not necessarily mean volatility would crash, as whales are also likely to continue accumulating coins ahead of the reward halving.

"If the whales shift to accumulating bitcoin while HODLers are still within their current phase, it would suggest an additional increase in demand for BTC at near the same as the mining supply is scheduled to be cut in half in early May," Abendschein told CoinDesk.