Bitcoin volatility is in meltdown, but downside protection still commands a premium
Bitcoin's implied volatility index, BVIV, has dropped to its lowest level since September as the cryptocurrency remains range-bound between $62,000 and $66,000. Despite this decline in overall volatility expectations, investors continue to pay a premium for downside protection, signaling lingering caution regarding potential price drops.
Why it matters
The compression of volatility and the persistence of 'put skew' suggest that while the market is currently quiet, institutional participants remain wary of downside risk, which could lead to aggressive positioning and increased vulnerability if market conditions shift.
The bitcoin price has held between $62,000 and $66,000 since early July. Over the weekend, Volmex’s BVIV index, a gauge of bitcoin’s annualized 30-day implied volatility, fell to 35.59%, the lowest since September.
The metric, a crypto analog to the Cboe Volatility Index (VIX), which measures implied volatility in U.S. equities, is, like its Wall Street equivalent, known as a ‘fear index’ because options activity reflects demand for protection against price moves. The greater the nervousness, the greater the demand and the higher the index.
The current BVIV level is a sharp slide from early February, when it spiked above 90% as bitcoin tumbled from $90,000 to nearly $60,000 and traders rushed into options to hedge against violent price swings.
BVIV's recent slide is the result of a "broad supply-demand imbalance" in the crypto options market, according to Griffin Sears, the head of derivatives at cryptocurrency prime brokerage FalconX.
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