Bargain-basement Opportunity for Crypto Volatility Traders

“Explosive” bull runs have proceeded those times when volatility has been low in the crypto markets, according to one analyst

article-image

Source: Shutterstock / Zakharchuk, modified by Blockworks

share

Volatility in crypto markets is hovering at long-term lows, signaling a potential profitable entrance for traders to begin piling into long volatility positions in both options and spot markets, analysts say.

Bitcoin’s 30-day implied volatility has fallen to its lowest point in more than two years: to 16.7% above realized, according to data compiled by digital asset research firm BitOoda. Bitcoin’s realized volatility sits at 22%.

“We view these unusually low levels as a potential opportunity to go long volatility,” BitOoda said in its report. “Volatility seems very cheap right now, and we would expect it to increase in the coming days and/or weeks.”

Figure: Bitcoin annualized volatility based on 30-say trailing daily returns of BTCUSD (spot bitcoin) and 100% Moneyness Implied Volatility for BTC1 (CME bitcoin futures) since January 2020; Source: Bloomberg, BitOoda

Utilized within the derivatives markets, implied volatility refers to a metric designed to anticipate changes in an asset’s fluctuations. The setup, in turn, has rendered the purchase of bitcoin options remarkably cheap through a historical lens, per BitOonda’s report.

Typically, in bear markets, implied volatility tends to drift upwards where expectations of an asset’s price are believed to be heading down over time. In bull markets, implied volatility tends to drift down on expectations of a future price rise.

Here “typically” is important to keep in mind, since volatility expansion can come either to the upside or downside.

Implied differs from realized volatility, which is a measure of past performance and actual results.

With both realized and implied volatility both sitting at historic lows and volatility being cheap versus prior levels, structures such as bull call spreads may be attractive investment strategies, Toby Chapple, head of trading from Australian trading firm Zerocap told Blockworks.

Bull call spreads are an options trading strategy pairing a long call at a lower strike price with a short call higher at a strike price.

“If you look at the past performance of volatility, it has been down at these levels multiple times, so it is not out of the ordinary,” Chapple said. “It generally does not stay low for long, though.”

Chapple concluded volatility in the crypto markets has not been this low since July 2020 — more than two and a half years ago.

Over the same 30-day period, ether (ETH) options could also be “especially attractive” amid the highly anticipated Shanghai hard fork expected in March, which would likely be a catalyst for future volatility for the asset, BitOoda said. ETH realized volatility of 36% and implied volatility of 52% are also hovering at long-term lows.

“Interestingly in crypto, the times when volatility has been low have [preceded] explosive bull runs in the market, not crashes in prices,” Chapple said.


Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the Forward Guidance newsletter.

Get alpha directly in your inbox with the 0xResearch newsletter — market highlights, charts, degen trade ideas, governance updates, and more.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.

Tags

Upcoming Events

Salt Lake City, UT

MON - TUES, OCT. 7 - 8, 2024

Blockworks and Bankless in collaboration with buidlbox are excited to announce the second installment of the Permissionless Hackathon – taking place October 7-8 in Salt Lake City, Utah. We’ve partnered with buidlbox to bring together the brightest minds in crypto for […]

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Permissionless is a conference for founders, application developers, and users. Come meet the next generation of people building and using crypto.

Javits Center North | 445 11th Ave

Tues - Thurs, March 18 - 20, 2025

Blockworks’ Digital Asset Summit (DAS) will feature conversations between the builders, allocators, and legislators who will shape the trajectory of the digital asset ecosystem in the US and abroad.

recent research

4.png

Research

This months PPGC covered four main areas. Firstly, debriefing the progress and status of the mainnet implementation of the Ahmedabad hard fork. Secondly, a retrospective on the testnet phase of the Ahemdabad Hard Fork. Thirdly, an update on PIP-36 which involves replaying failed state syncs. Lastly, PIP-47 which pushes upgrades to the Polygon Protocol Council.

article-image

Institutions to test out the settlement of “digital assets and currencies” on a network that annually carries more than 5 billion financial messages

article-image

After Bitwise’s XRP ETF filing this week, one industry watcher notes: “Politics will determine whether this happens soon or in a few years”

article-image

Plus, a look back at some of the SEC’s biggest enforcement moves under Gurbir Grewal

article-image

The forward-looking financial system is being championed by several contributors to India’s UPI digital money system

article-image

Multiple teams are pursuing integration cross-chain and off-chain

article-image

An SEC spokesperson told Blockworks the Ripple judgment clashes with Supreme Court precedent and securities laws