Bitcoin’s recent price correction, following a relentless rally, has mirrored weakness in traditional markets. Bitcoin has exhibited a surprising lack of panic, while volatility gauges for stocks and bonds spiked noticeably.
Despite a 7% price drop for Bitcoin this month, options markets haven’t seen a surge in demand for downside protection, unlike traditional markets, with Deribit’s BTC VOL index, an options-based expected volatility gauge, even dropping from 75% to 70%.
The contrast is evident when comparing Bitcoin’s implied volatility, a measure of expected price swings, with the Chicago Board Options Exchange’s VIX, a volatility gauge for the S&P 500 stock index, as the VIX has jumped significantly from an annualized 13% to 19%, reflecting heightened anxiety among stock market investors.
Bitcoin’s muted volatility gauges, however, aren’t necessarily a sign of inherent stability, as historically BTC’s implied volatility has been positively correlated with its price. When its price goes up, volatility tends to rise as well, and vice versa.
This dynamic suggests that Bitcoin’s volatility could rise, should its uptrend resume. On top of that the MOVE index, which measures the expected volatility in U.S. Treasuries, rose from 94% to 111% while bond prices declined, with a rise in the MOVE index often leading to tighter financial conditions as investors take a risk-off approach.
Since Treasuries are used as collateral for borrowing to invest with leverage in riskier assets like stocks, increased volatility in this market can lead to reduced leverage and liquidity, potentially squeezing both stocks and Bitcoin.
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- Source: https://www.cryptocompare.com/email-updates/daily/2024/apr/23/
