Bitcoin is struggling to create bullish momentum, even as the key panic indicator retreats from its high earlier this month and hints at renewed stability.
Bitcoin’s 30-day implied volatility, the fear or panic gauge that reflects investors’ expectations for 4-week price swings, fell to 52% annualized, according to data source Volmex. The decline reversed the peak earlier this month, which saw the index rise from around 48% to nearly 100% as bitcoin crashed to near $60,000.
The decline in volatility suggests that panic has subsided and investors are no longer searching for options or hedging instruments as frantically as during the crash.
Options are derivative contracts that provide insurance against price fluctuations. A call option allows you to profit from the upward volatility of BTC prices, while a put option protects you against price declines. The demand for options influences implied volatility.
“Implied volatility has declined and deleveraging is losing steam, Bitfinex analysts said in an email to CoinDesk, noting the new stability and ebbing panic.
Nonetheless, Bitcoin’s price remains under pressure, trading at just under $68,000 at press time, down 1.2% over the past 24 hours, according to CoinDesk data. The sell-off earlier this month collapsed to near $60,000 on February 6, sparking a recovery, but prices have not sustainably risen above $70,000 since.
This reflects the weakness of demand.
“Funding rates have not yet shown an appetite for aggressive re-leveraging and derivatives markets support the idea of stabilization rather than further buying,” Bitfinex analysts explained.
Perpetual funding rates are periodic payments exchanged between long and short traders in crypto perpetual futures contracts in order to keep the contract price anchored to the spot price. A positive rate implies that long positions (buyers betting on price increases) pay out short positions (sellers betting on declines), signaling more bullish positioning in the market. A negative rate suggests a bias towards short positions.
Although implied volatility has declined sharply, BTC perpetual funding rates remain just above zero, a sign of a slight upward trend among traders, but nothing aggressive yet.
The institutional appetite is not great either. U.S.-listed Bitcoin spot exchange-traded funds saw a net outflow of $677.98 million this month, extending a three-month redemption streak, according to data source SoSoValue.
The macro gives hope
Beaten bulls may be pinning their hopes on falling U.S. inflation and falling real yields, which could provide a tailwind for risk assets and non-yielding assets like bitcoin.
Data released last week showed the consumer price index (CPI) slowed to 2.4% year-on-year in January from 2.7% in December, bolstering hopes of at least two 25 basis point rate cuts by the Fed this year.
The real or inflation-adjusted yield on 10-year U.S. Treasuries fell to 1.8%, the lowest since Dec. 1. A decline in real yield typically prompts investors to increase their exposure to assets like bitcoin.
“Lower real yields reduce the relative disadvantage of zero-yielding assets such as Bitcoin, while a weaker dollar supports global liquidity conditions,” Bitfinex analysts noted.
