Deribit, a cryptocurrency options exchange, is reporting that the future-looking Bitcoin (BTC) volatility index has reached its lowest level in two years. This index is used as a gauge of fear in the crypto market and indicates the potential lack of price turbulence for Bitcoin in the near future. The volatility index for both Bitcoin and Ether (ETH) has fallen to a multi-year low of 37% according to analytics platform Greeks Live.
The current implied volatility level, as projected by the DVOL algorithm, has also reached its lowest point in the history of cryptocurrencies. DVOL, or the Deribit Implied Volatility Index, analyzes option activity to provide an indication of the expected volatility for a crypto asset over the next 30 days. This decline in volatility suggests that derivatives traders are not confident in any major market moves in the short term, and it is likely that the lack of volatility will continue.
Greeks Live notes that the continued low liquidity in the market has played a significant role in depressing implied volatility levels for Bitcoin. This lack of liquidity contributes to the overall decrease in volatility in the cryptocurrency market. The declining volatility trend is expected to continue, forcing implied volatility to reach new lows.
Other analysts using different metrics have supported this sentiment. Crypto analyst Josh Olszewicz observed that Bitcoin’s weekly Bollinger Bands, which measure asset prices and volatility over time, have contracted to record levels. This indicates that the market is experiencing extremely low volatility, as the Bollinger Bands have never been this tight on the weekly timeframe. The lack of significant price movements further supports the notion that the crypto market is currently experiencing a period of low volatility.
Since mid-March, cryptocurrency markets have been rangebound, with total capitalization remaining around $1.2 trillion. There have been minimal deviations from this level, with only a brief peak in mid-April and a short-lived trough in mid-June. This stability further reinforces the lack of volatility in the market.
The decline in volatility raises questions about the future of cryptocurrency markets. Some see it as an opportunity for traders to make more accurate predictions and engage in less risky investments. However, others view it as a potential curse, as low volatility may deter new investors who are seeking high returns.
Overall, the crypto market’s low volatility, as indicated by the Deribit volatility index and other metrics, suggests that there may be a prolonged period of price stability for Bitcoin and other cryptocurrencies. Traders and investors will need to adjust their strategies accordingly to navigate this period of reduced volatility.