Bitcoin’s notorious volatility has taken an unprecedented turn, as the market currently experiences an extreme compression of volatility. This phenomenon is reflected in options markets, leading to speculations about whether Bitcoin’s infamously wild price swings are a thing of the past or if volatility is being inaccurately priced.
Bitcoin’s Spot Price & Historical Trends
Glassnode’s weekly on-chain report reveals that the market is witnessing an exceptional compression of volatility. Fewer than 5% of trading days have seen narrower price ranges, signaling an unusually quiet period. This trend is particularly noticeable in futures markets, where both Bitcoin and Ethereum are experiencing record-low trade volumes, with cash-and-carry yields slightly above the risk-free rate at 5.3%.
On the other hand, the options markets are currently experiencing a significant reduction in volatility. In fact, the volatility premiums have now dropped to less than half of what was observed during the period of 2021-2022.
Metrics such as the put/call ratio and the 25-delta skew indicate a preference for calls in the options markets, suggesting a bullish sentiment. Additionally, observations show that Bitcoin’s spot price is trading above various long-term moving averages, aligning it with historical uptrends.
This quiet spell follows a predictable pattern observed in past cycles. In 2023, Bitcoin’s realized volatility for various timeframes has reached the lowest levels seen in years. The range between the highest and lowest prices on a weekly basis is just 3.6%, an uncommon occurrence. Similarly, the 30-day price range has narrowed down to a mere 9.8%, marking an exceptional event in Bitcoin’s historical record.
The derivatives markets for both BTC and ETH reflect this calmness. Trade volumes have reached all-time lows for Ethereum and are approaching the same for Bitcoin. This indicates a rising dominance of Bitcoin within futures markets, signaling a shift toward lower-risk assets. Furthermore, the open interest in Bitcoin futures has remained stable, demonstrating maturity even amidst fluctuating price conditions.
Options markets have experienced significant growth in open interest over the past year, now rivaling futures markets in magnitude. The collapse of implied volatility across various contract expirations is notable, with options pricing in historically low volatility levels.
However, this market state has led to questions about Bitcoin’s future volatility. With prices trading within historically tight ranges and options markets implying minimal volatility ahead, the cryptocurrency community is left pondering whether Bitcoin’s notorious volatility has truly subsided or if the markets are potentially mispricing this newfound stability.
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