Bitcoin traders are finally taking falling prices seriously. The cryptocurrency fear indicator, the BVIV Index, shows this.
BVIV, which measures the implied or expected 30-day volatility of the cryptocurrency, jumped nearly 20% on Tuesday to 46.45%. This is the biggest one-day spike since February 5, according to data source TradingView.
Here’s why it’s important.
For about two months, Bitcoin market sentiment was calm. Even when BTC fell from its high of $82,000 in early May to $75,000 last week, market sentiment barely shook. BVIV has actually remained around its annual low of 40% during this development.
In other words, it was an orderly sale. Don’t panic. But that changed on Tuesday when the BTC spot price fell more than 6% to $66,000.
The BVIV index exploded with this price drop. The index is essentially a fear gauge. When it rises, traders aggressively buy options to protect against further declines. Tuesday’s nearly 20% increase indicates that protective buying is back.
To put Tuesday’s action in context: On February 5, BVIV surged more than 50% in a single day, hitting over 90% as bitcoin crashed to as low as $60,000. Tuesday’s jump is far from this level. But the direction of the movement is what traders should worry about right now.
VIX-like behavior
Think of BVIV as Bitcoin’s version of Wall Street’s VIX fear gauge. Since the launch of US Bitcoin ETFs more than two years ago, institutional players have flocked to the market. This institutionalization has created something interesting: BVIV is now moving in the opposite direction of the bitcoin spot price with increasing consistency. Prices are falling, fear is rising. Prices rise, fear fades.
This is a relatively new dynamic for crypto, but not so much on Wall Street, where the S&P 500 and its fear gauge, the VIX, have been inversely correlated for decades.
The important thing to remember is that after two months of unusual calm, fear is reappearing in the Bitcoin market. It remains to be seen whether Tuesday’s peak is a one-day burst or the start of a sustained regime of volatility.
