Bitcoin Volatility Hits 20-Month High, Traders Brace for Possible Slump

Ishwa Junaid
By Ishwa Junaid Add a Comment
5 Min Read
Bitcoin volatility

Bitcoin volatility has reached a 20-month high, sparking concerns among traders about potential further declines. As Bitcoinā€™s volatility index surges, market participants are hedging against the possibility of an extended downturn. The Bitcoin Volmex Implied Volatility Index, a key indicator, peaked at 97.14 on August 5, coinciding with Bitcoinā€™s brief dip below $50,000. This level of volatility has not been seen since the collapse of cryptocurrency exchange FTX in November 2022. The surge in volatility has led to increased caution among traders, who are now aggressively buying options to protect their positions.

Bitcoin Volatility Index Peaks

The Bitcoin Volmex Implied Volatility Index reached a high of 97.14 on August 5, according to CoinMarketCap data. This peak occurred on the same day Bitcoin briefly dipped to $49,813, highlighting the heightened market anxiety. The indexā€™s rise to this level, not seen since November 2022, signals increased uncertainty in the market.

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Bitcoin volatility
Bitcoin volatility

Ed Hindi, chief investment officer at Tyr Capital, told Cointelegraph, ā€œTraders are aggressively buying puts and put spreads on both BTC and ETH to protect their positions from further downside.ā€ This sentiment reflects the broader marketā€™s cautious approach, as traders seek to hedge against potential losses.

Bearish Sentiment Dominates

The current put-to-call volume ratio, which measures the demand for put (sell) versus call (buy) options, stands at 46.94% calls and 53.06% puts over the past 24 hours, resulting in a put-to-call ratio of 1.13, according to CoinGlass data. This ratio indicates a bearish sentiment among traders, who are more inclined to buy puts to protect against further declines.

Hindi added, ā€œPut skew is extremely well bid. This may be a sign that the market is overextended.ā€ Despite the bearish sentiment, Hindi believes there may be further downside but doubts it will breach $45,000. He noted that the marketā€™s direction might depend on factors such as the end of the Japanese yen (JPY) carry trade unwind, which he believes is nearing its conclusion.

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Another metric, Bitcoin options volume, dropped by 39.73% over 24 hours on August 6, signaling that futures traders are uncertain about Bitcoinā€™s price direction. This decline in options volume suggests a lack of consensus among traders about the marketā€™s next move.

Diverging Opinions Among Traders

While some traders are bracing for further declines, others remain optimistic about Bitcoinā€™s prospects. Pseudonymous crypto trader Yoddha declared it could be ā€œthe best buying opportunity of 2024,ā€ highlighting the diverse opinions within the trading community.

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Bitcoin Volatility
Bitcoin Volatility

RektProof, another pseudonymous trader, expressed a similar sentiment in an August 6 X post, writing, ā€œAggressive sell-off would assume price to stall for a bit and give us a range.ā€ This perspective suggests that the market might stabilize before any significant movement occurs.

Bitgrow Lab founder Vivek Sen added, ā€œExpect a HUGE reversal soon,ā€ indicating his belief in a potential near-term recovery. These differing viewpoints illustrate the uncertainty and volatility that currently characterize the Bitcoin market.

Bitcoin Volatility: The End Note

The recent surge in Bitcoin volatility has heightened market uncertainty, with the Bitcoin Volmex Implied Volatility Index reaching its highest level in 20 months. Traders are hedging against further declines by aggressively buying options, as indicated by the put-to-call volume ratio and the drop in options volume. While bearish sentiment dominates, some traders remain optimistic about a potential recovery.

As Bitcoin continues to navigate this period of heightened volatility, market participants will be closely monitoring key indicators and external factors influencing the market. The coming weeks will be crucial in determining whether Bitcoin will stabilize, decline further, or experience a significant reversal. Keep following TheBITJournal for latest crypto developments.

Disclaimer

The price predictions and financial analysis presented on this website are for informational purposes only and do not constitute financial, investment, or trading advice. While we strive to provide accurate and up-to-date information, the volatile nature of cryptocurrency markets means that prices can fluctuate significantly and unpredictably.

You should conduct your own research and consult with a qualified financial advisor before making any investment decisions. The Bit Journal does not guarantee the accuracy, completeness, or reliability of any information provided in the price predictions, and we will not be held liable for any losses incurred as a result of relying on this information.

Investing in cryptocurrencies carries risks, including the risk of significant losses. Always invest responsibly and within your means.

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