Bitcoin's (BTC) price volatility has surged over the last two months, signaling a potential return to options-driven price action that sparks large market moves in both directions.
Bitcoin’s implied volatility never broke past 80% after Bitcoin ETFs were approved in the United States, according to Jeff Park, a market analyst and advisor at investment firm Bitwise.
However, a chart shared by Park shows that Bitcoin’s volatility is creeping back up to about 60 at the time of this writing.
Park cited Bitcoin’s explosive price action in January 2021, which kicked off the 2021 bull run that took BTC to new all-time highs and a cycle top of $69,000 in November of that year, as the last major options-driven melt-up. He said:
“Ultimately, it is options positioning, not just spot flows, that creates the decisive moves that carry Bitcoin to new highs. It’s possible that for the first time in nearly two years, the volatility surface is flickering with early signs that Bitcoin might become option-driven again.”
The analysis counters the theory that the presence of ETFs and institutional investors has permanently smoothed out Bitcoin’s price volatility and shifted market structure to reflect a more mature asset class, bolstered by passive inflows from investment vehicles.
Rising Volatility Amid Market Carnage Triggers Fears of Extended Downturn
The elevated volatility in the BTC market is consistent with levels across all asset classes, according to Binance CEO Richard Teng.
Bitcoin crashed below $85,000 on Thursday, triggering fears of further downside in the coming weeks and potentially starting the next Bitcoin bear market.
Analysts have presented several theories about the causes of the downturn, including the liquidation of highly leveraged positions in derivatives markets, BTC long-term holders cashing out, and macroeconomic pressures.
The ongoing BTC downturn is due to short-term factors and signals “tactical rebalancing,” rather than institutional flight or a lack of demand, according to analysts at crypto exchange Bitfinex.
This does not derail Bitcoin’s long-term fundamentals, price appreciation, or institutional adoption trends, the analysts said.