New statistical evidence has emerged, suggesting that Bitcoin’s (BTC) market dynamics are now intricate linked to ebb and flow on Wall Street.
Recently, the 90-day correlation coefficient between Bitcoin’s 30-day involved volatility index-Volmex’s BVIV and Deribit’s DVOL-and S&P 500 VIX hit a record high of 0.88, according to data source trading.
A positive correlation of 0.88 indicates that the two variables are tightly tied. From Wednesday, the context stood at 0.75. VIX represents the 30-day implicit or expected price turbulence in the Wall Street’s Equity Index, S&P 500.
The strengthening correlation suggests that BTC’s implied volatility index develops into fear gauges, similar to VIX, which typically falls under bull runs and increases during sales.
BVIV has crashed from approx. 67% to 42% this year and moved in the opposite direction of BTC’s price, which has increased by 26%. Historically, BTC and its implied volatility tend to move in tandem. Meanwhile, VIX has fallen 11% this year, while the S&P 500 index has achieved over 8%.
According to Markus Thielen, founder of 10x research, growing institutional participation in the crypto market, characterized by volatility sellers, behind the collapse of BTC implicated volatility and the resulting record correlation with VIX.
Volatility sale involves writing out-of-the-money (OTM) calls to generate an additional income on top of the spot market’s holdings. Some dealers also write OTM sets.
“This Bitcoin cycle remains dominated by Wall Street participants actively compressing volatility,” Thielen told Coindesk.
“Instead of speculating in the direction, many institutional players sell call options to generate additional yield-to mirre traditional stock income strategies. As a result, directional streams tend to follow wider risk-on/risk-off dynamics known for older markets,” Thielen added.
Thielen added that the institutional framework has contributed to BTC’s growing connection with US shares, “especially as hedge funds and asset leaders increasingly using the same macroplay book across both asset classes.”
Read: Bitcoin’s ‘Low Volatility’ Rally from $ 70k to $ 118K: A tale of transition from Wild West to Wall Street-like dynamics
