The year 2023 has been difficult to describe as we near the mid-point of the year. This is true for digital assets and equities. Analysts are wondering what the next step will be in the ongoing debates on the macroeconomic situation, both domestically and internationally. When I wrote in March about the U.S. Digital assets rallied to record highs in the wake of the banking crisis. They were hailed as safe havens and hedges against financial Armageddon.

Since then, any headline that is meaningful has been dismissed as irrelevant. Digital assets and equities have lost interest in conventional narratives, such as bank instability, ongoing conflict between Russia and Ukraine and a rate hike of 25 basis points in May.

Both realized and implied volatility are at all-time lows in trading terms. Bitcoin (BTC), over the last two weeks, has seen its range reduced to just 6.3%. The 30-day realized volatility is at 42.1% (4th percentile based on a 1-year lookback). Ether (ETH) has been stuck in a tight range of 7.1% with a 30-day realized vol of 41.9 percentile.

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Short vol bets are being placed by traders to take advantage of the decreasing volatility in digital assets. They are betting that current conditions will continue. And with market makers such as Jane Street, Jump Capital and Jump Capital slowing down their crypto trading it is possible they are correct.

Can it be that simple, though? Investors are ignoring important signals that could push bitcoin, ether and other crypto currencies out of recent limits.

Recent reports have indicated that the June 1 deadline for debt ceilings is the most likely candidate to cause a binary event of volatility. It’s not hard to see why: a default would send shockwaves throughout the markets.

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Bond markets are pricing in risk in response to this uncertainty. The yields on 2- and 30-year Treasury bonds have risen sharply since May. The U.S. Dollar Index has begun a double bottom rally from the 101.0 level. In the past, bitcoin has not done well when it is above this level. The chart below provides some insight into the inverse correlation of bitcoin and DXY.

It is enough to say that the recent calmness in bitcoin and Ethereum volatility should not fool market participants into a false feeling of security. We could see the volatility of these assets return as the macroeconomic winds continue to blow and narratives that are not well understood begin to take shape. If the “higher-for-longer” narrative continues, investors will continue to pressure digital assets, as they navigate through these murky waters.

Nick Baker is the editor.