The key takeaways
- Bitcoin’s implied price volatility has plummeted to an all-time low. This signals that traders anticipate further consolidation.
- Overconfidence among Bitcoin bulls may lead to a rally driven by liquidation above $82,000.
Bitcoin implied volatility fell to 36%. It is its lowest level since eight months. Professional traders now price in smaller odds of large price swings. Bitcoin derivatives indicate that, while declining volatility may not be inherently bearish or bullish, it could lead to an upward breakout.
Deribit Bitcoin index (orange) vs. Bitcoin/USD Source: TradingView
The initial volatility spike was caused by a sharp drop in price between January and Februrary, especially because there wasn’t a good explanation for it. While Bitcoin’s price range in March was relatively small, between $63,000-$71,000, the implied volatility remained above 50%.
The traders became more confident about the level of support near $60,000. This led to a reduction in volatility and risk perception. Analysts claim that the Bitcoin price is now more stable due to the growing participation of institutions and the expanding derivatives, such as Strategy’s perpetual stock.
Source: X/Nakamoto
Tyler Evans, Chief Investment Officer of UTXO Management reportedly stated that digital credit products create a buffer to Bitcoin’s volatile price. Rather than being forced to sell their holdings, large investors—including miners and companies focused on building Bitcoin reserves—have increasingly resorted to collateralized loans.
Bitcoin’s volatility is bound to increase
Bitcoin’s volatility is likely to return above 42% as it has yet to mature and find a wide range of uses. Bitcoin’s volatility never went below 35%. However, in theory it may go lower. In the past, price fluctuations are usually more volatile after consolidation.
Bitcoin price movements are usually accelerated when leveraged positions get liquidated, regardless of external factors like trade wars or economic stimuli measures.
Source: CoinGlass Estimated Bitcoin liquidity heat map, USD. Source: CoinGlass
Bitcoin’s liquidation heat map estimates indicate a concentration of sell positions (shorts) in the range between $78,000 to $83,000. The bears could have been overconfident following nearly four month of Bitcoin prices below $90,000 Bitcoin option skew helps to understand how traders and whales have positioned themselves.
Related: Coinbase premium hits monthly low as institutional selling pressure mounts
Bitcoin 30-day options delta skew (put-call). Source: Glassnode
Current professional traders fear that the price of Bitcoin will fall as they are trading put options at a premium of 14% compared to buy (call) options. In neutral markets, the indicator would range between -6% to +6%. But this is not the case in the past 4 months.
The volatility should not be used as a predictor of market direction. The Bitcoin options market is currently experiencing a weaker sentiment. bullish breakout A move above $82,000 could trigger an even stronger squeeze on leveraged positions. However, a return to $72,000 is already priced into the market.
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Source: cointelegraph.com
