Bitcoin option markets show a low expectation of volatility, which has in fact preceded price spikes.
Bitcoin Option ATM IV is a recent decline.
On-chain Analytics firm released its weekly report in the latest edition. Glassnode Bitcoin Options at-the-Money Implied volatilty is the latest trend.
Implied Volatility (IV) This is an indicator which measures the expected volatility of BTC in the future. It’s based off the price of Options contracts. At-The-Money (ATM) IV, the version of the metric of interest here, specifically calculates this expectation for the contracts that have their strike price closest to the asset’s current spot price.
It is important to note that the word “you” means a person. “strike price” the price set by the options contract at which the owner can decide to either buy or sell the asset (in a case of bullish or call bets).
The chart below shows how the Bitcoin Options ATM IV has been trending over the last few months.
As displayed in the above graph, the Bitcoin Options ATM IV has been following a downtrend since a while now, indicating the traders aren’t expecting near-term volatility.
BTC may be a problem for these traders if the history is any indication. “Historically, such subdued volatility expectations have often preceded sharp market moves, making them a potential contrarian indicator,”Glassnode explains what it is.
From the chart, it’s visible that such a contraction in Bitcoin Options ATM IV also occurred back in 2023 and what followed back then was a bull rally for the cryptocurrency. Now, it remains to be determined whether this contraction will also lead to volatility.
ATM contracts aren’t the only one expecting low volatility. The report states that volatility is low. Deribit‘s DVOL index, which tracks a 30-day IV measure for all strike prices, has dropped to historically low levels recently.
The Bitcoin DVOL, as can be seen in the graph, has declined in recent months. Index is at extreme lows that have only been seen in 2.6% trading days. The firm provides the following explanation:
This is often due to market complacency or a limited desire for hedges against major moves. These conditions may persist but they expose the market to sudden spikes in volatility if there is a catalyst. Past cycles showed this through disorderly, sharp price changes when risks were rapidly repriced.
BTC Price
Bitcoin’s price is currently around $121,600. That represents a 5% increase over the previous week.
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Source: www.newsbtc.com
