Bitcoin struggling to build upward momentum, even as the key panic gauge pulls back from its early month highs and hints at renewed stability.
Bitcoin’s 30-day implied volatility, the fear or panic gauge that reflects investors’ expectations of price swings over 4 weeks, has fallen to 52% year-on-year, according to data source Volmex. The decline has reversed gains in the early month, which saw the index rise from about 48% to nearly 100% as bitcoin crashed to nearly $60,000.
The decreasing volatility suggests that the panic has subsided and that investors are no longer chasing options or hedging instruments as frantically as during the crash.
Options are derivative contracts that offer insurance against price fluctuations. A call option allows you to take advantage of upside price volatility in BTC, while a put option protects against price declines. Option demand affects implied volatility.
“Implied volatility has fallen and leverage is running out,” analysts at Bitfinex said in an email to CoinDesk, noting the newfound stability and ebbing of panic.
Still, bitcoin’s price remains under pressure, trading just below $68,000 at press time, down 1.2% over the past 24 hours, per CoinDesk data. The early-month sell-off was close to $60,000 on February 6, sparking a rally, but prices have not moved above $70,000 since.
This indicates weak demand.
“Funding rates have yet to show appetite for aggressive re-leveraging and derivatives markets support the view of a stabilization rather than renewed buying,” explained Bitfinex analysts.
Perpetual funding rates are periodic payments exchanged between long and short traders in crypto-perpetual futures contracts to keep the contract price anchored to the spot price. A positive rate implies that longs (buyers betting on price increases) pay off shorts (sellers betting on drops), signaling a more bullish positioning in the market. A negative rate suggests a bias for short positions.
While implied volatility has fallen sharply, funding rates in BTC perpetuals remain just above zero, a sign of mildly bullish tendencies among traders, but nothing aggressive yet.
The institutional appetite has not been great either. The US-listed spot bitcoin exchange-traded funds recorded net outflows of $677.98 million this month, extending a three-month streak of redemptions, according to data source SoSoValue.
Macro gives hope
Battered bulls may pin their hopes on waning U.S. inflation and lower real interest rates, which could give tailwinds to risk assets and non-yielding assets like bitcoin.
Data released last week showed the consumer price index (CPI) fell to 2.4% year-on-year in January from 2.7% in December, bolstering hopes for at least two 25 basis point rate cuts by the Fed this year.
The real or inflation-adjusted yield on the US 10-year Treasury note fell to 1.8%, the lowest since December 1. A fall in real interest rates typically causes investors to increase exposure to assets such as bitcoin.
“Lower real yields reduce the relative carry disadvantage of non-yielding assets like Bitcoin, while a softer dollar supports global liquidity conditions,” Bitfinex analysts noted.
