Bitcoin (BTC) price volatility has increased over the past two months, indicating a possible return to options-driven price action that causes large market moves in both directions.
Bitcoin’s implied volatility never exceeded 80% after Bitcoin ETFs were approved in the United States, according to Jeff Park, market analyst and advisor at investment firm Bitwise.
However, a chart shared by Park shows that Bitcoin volatility is returning to around 60 at the time of 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 high of $69,000 in November of that year, as the last major options-driven crash. He said:
“Ultimately, it is the positioning of options, not just spot flows, that creates the decisive moves that take Bitcoin to new highs. It is possible that, for the first time in almost two years, the volatility surface is flickering with the first signs that Bitcoin could once again be driven by options.”
The analysis contradicts the theory that the presence of ETFs and institutional investors has permanently smoothed Bitcoin price volatility and changed the market structure to reflect a more mature asset class, driven by passive inflows from investment vehicles.
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Volatility is rising amid market carnage, raising fears of prolonged slowdown
The elevated volatility in the BTC market is consistent with levels across all asset classes, according to Binance CEO Richard Teng.
Bitcoin plunged below $85,000 on Thursday, raising fears of a further decline in the coming weeks and potentially starting the next Bitcoin bear market.
Analysts have put forward several theories about the causes of the downturn, including the liquidation of highly leveraged positions in derivatives markets, cash withdrawals from long-term BTC holders, and macroeconomic pressures.
BTC’s current decline is due to short-term factors and signals a “tactical rebalancing,” rather than an institutional outflow or 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.
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