Bitcoin’s Wall Street-like fear gauge rose to its highest level since the 2022 collapse of the FTX exchange, signaling intense market panic as prices plummeted to near $60,000.
Volmex’s Bitcoin Volatility Index (BVIV), which represents the expected annualized price turbulence over four weeks, jumped to almost 100%, up from 56% on Thursday.
The index serves as the crypto equivalent of Cboe’s VIX, the so-called fear/panic gauge, which indicates the 30-day implied volatility of the S&P 500 and increases during market panics as traders bid up options prices to protect against declines in the index.
BVIV does the same more often than not, rising during market panics seen on Thursday.
“A wave of panic swept crypto markets this week, correlated with high risk aversion across various asset classes. Bitcoin’s 30-day implied volatility, as measured by the BVIV index, rose from just over 40 to 95 in a matter of days, levels not seen since the infamous FTX collapse in late 2022,” Cole Kennelly, founder and CEO of Volmex Labs, told CoinDesk in a Telegram conversation.
Implied volatility is influenced by the demand for options or derivative contracts that help traders realize asymmetric gains from the underlying asset’s uptrends and hedge downside risks. Call options are used to bet on upside, while puts are typically purchased as insurance against price declines.
On Thursday, traders rushed to buy options listed on Deribit, particularly puts, as the price of bitcoin rose from $70,000 to nearly $60,000. The five most traded options in the past 24 hours are all puts 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.
“Market volatility reacted strongly to last night’s price decline. Initial volatility increased as dealers adjusted to gamma. [near-term risks]. Short-term flights led the rise, showing higher demand for protection, while longer-term flights lagged, keeping the volatility curve sharply inverted,” Jimmy Yang, co-founder of institutional liquidity provider Orbit Markets, told CoinDesk.
Yang’s clients rushed to buy downside protection, fearing that falling prices would devastate digital asset treasuries that were buying Bitcoin at higher levels. These companies could now liquidate at a loss, causing the price of Bitcoin to fall further.
“With significant uncertainty still ahead – particularly around DATs and the risk of further unwinding cascades, we have seen strong demand from clients for downside protection,” he added.
The price of Bitcoin has rebounded to over $64,000 at the time of writing, a recovery of over 5% from overnight lows, according to CoinDesk data. Yang expects volatility to stabilize.
“Sentiment is deep in extreme fear, but Bitcoin price appears to have found a base near $60,000. If price action stabilizes, volatility appears tense and could quickly pull back,” he said.
