Bitcoin Implied Volatility Plummets To Pre-Bull Market Levels: What This Means

Bitcoin has sharply declined in the past month which has dragged it down to the $40K price point. The digital asset’s downtrend had then promptly dragged their metrics like implied volatility down with it. This decline has been even sharper as bears have gotten a tighter grip on the market. For some, this could be bad news. However, for others, it could mean a period of opportunity.

Bitcoin Implied Volatility Crumbles

Bitcoin’s implied volatility is a metric that is used to illustrate investor expectations of future price volatility of the digital asset going forward. This metric is not only prominent in the crypto space but is used across a number of actives to map out investor expectations over time when it comes to volatility. If this metric is high, then investors are clearly expecting price volatility to be on the high side going forward, which is why this is an important metric for investors, especially those invested for the short term.

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For bitcoin, implied volatility has been on a steady downtrend since the end of 2021. This follows the price movements which have also recorded a similar downtrend in its value. The implied volatile downtrend however ramped up even more at the beginning of this year. It is important to note that low implied volatility (IV) for bitcoin is uncharacteristic, hence why it is important.

BTC implied volatility declines | Source: Arcane Research

With such low levels, volatility bets become a more attractive venture for bitcoin where they can buy call and put options. One thing about low IV levels for bitcoin is that they tend to extend for a Lon time. An example of this is the low IV levels recorded in June 2020 that lasted for six months into December 2020.

Bitcoin’s IV is being impacted by a number of factors, including decentralized finance (DeFi) innovations that are popping up around the corner.

BTC Price Movements

Bitcoin has been moving more or less erratically over the past few months. After hitting its peak of $69K, the digital asset had gone a consistent descent that saw it lose over 30% of the all-time high value. Additionally, the digital asset high is known to be a market mover has dragged the market down with it, losing about $300 billion off its own market cap in the process.

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Bitcoin has however held strong above the $40K point. The digital asset continues to show strong support at this point, suggesting that this is the point for bulls to hold and for bears to beat.

BTC at $42K | Source: BTCUSD on TradingView.com

In the last 24 hours, the price of BTC has grown from the low $41,000 to above $42,000, adding about $1,000 to its value just as the markets begin to open for midweek trading. The price of the digital asset is currently trending at $42,300, with indicators pointing towards a retest of the $42,500 resistance point.

Featured image from Binaryx, charts from Arcane Research and TradingView.com