Bitcoin’s Wall Street-like fear gauge has surged to its highest level since the 2022 FTX exchange collapse, signaling intense market panic as prices fell to nearly $60,000.
Volmex’s bitcoin volatility index (BVIV), which represents the annual expected price turbulence over four weeks, jumped to nearly 100% from 56% on Thursday.
The index acts as a crypto equivalent to Cboe’s VIX, the so-called fear/panic gauge, which indicates the 30-day implied volatility of the S&P 500 and rises during market panic as traders bid up options to hedge against declines in the index.
BVIV does the same more often than not, rising during market panic as observed on Thursday.
“A wave of panic swept through the crypto markets this week, correlated to a sharp risk-off movement across various asset classes. Bitcoin’s 30-day implied volatility, as measured by the BVIV index, rose from just above 40 to 95 in a matter of days, levels not seen since the infamous collapse of F2022’s CEO of F2022, which was found at the end of of F2022’s Kennel, Volmex Labs told CoinDesk in a Telegram chat.
Implied volatility is influenced by demand for options or derivative contracts that help traders make asymmetric gains from uptrends in the underlying asset and hedge downside risks. Call options are used to bet on the upside, while put options are typically bought as insurance against price falls.
On Thursday, traders scrambled to buy options on the Deribit list, especially puts, as bitcoin’s price rose from $70,000 to nearly $60,000. The five most traded options in the last 24 hours are all set for strikes ranging from $70,000 to $20,000, according to data source Deribit Metrics. The $20,000 put represents a bet that prices will fall below this level.
“Volatility markets reacted sharply to last night’s price decline. Front-end volatility increased as traders adjusted for gamma [near-term risks]. Short-dated vols led the rise, showing higher demand for protection, while longer-dated vols lagged, keeping the volatility curve steeply inverted,” Jimmy Yang, co-founder of institutional liquidity provider Orbit Markets, told CoinDesk.
Yang’s clients rushed to buy downside protection as they feared the price crash could destroy digital assets that bought bitcoin at higher levels. These firms could now liquidate at a loss, leading to a deeper slide in bitcoin’s price.
“With significant uncertainty ahead – particularly around the DATs and the risk of further liquidation cascades, we have seen a lot of customer demand for downside protection,” he added.
Bitcoin’s price has risen to over $64,000 at the time of writing, an over 5% recovery from overnight lows, according to CoinDesk data. Yang expects volatility to stabilize.
“Sentiment is deep in extreme fear, but bitcoin’s price appears to have found a base near $60,000. If price action stabilizes, volatility looks stretched and could quickly retreat,” he said.
