Bitcoin (BTC), the leading cryptocurrency by market value and trading volume, is said to be relatively stable compared to other digital assets, protecting a trader's portfolio from sharp fluctuations in the broader market.
However, Bitcoin has been more volatile than Ether (ETH) recently.
Bitcoin’s annualized historical or 30-day realized volatility rose to nearly 60% late last week, surpassing Ether’s 30-day realized volatility by almost 10 percentage points. That's the highest spread in at least a year, according to data from Paris-based Kaiko. Historical volatility indicates the degree of price turbulence observed over a specific period of time.
Weeks after the U.S. Securities and Exchange Commission (SEC) gave the green light to nearly a dozen spot Bitcoin exchange-traded funds (ETFs), the volatility spread between Bitcoin and Ether turned positive, allowing traders to to engage in cryptocurrency without owning it.
Since then, traders have been fully focused on spot ETF activity, with net inflows leading to bullish volatility in Bitcoin and the broader crypto market. Meanwhile, the dwindling likelihood of the SEC approving an ETH ETF by May appears to have demotivated Ether traders.
The upcoming Bitcoin blockchain reward halving, a quadrennial event that reduces the speed of BTC issuance per block by 50%, could be another reason for the cryptocurrency's relatively higher volatility.
On April 21, the built-in code will reduce the reward paid to miners per block from 6.25 BTC to 3.125 BTC, thereby halving the miner's revenue, which is currently at $26 billion per year, according to ByteTree.
The consensus is that the halving is bullish because it halves the pace of supply expansion and creates an imbalance between demand and supply in favor of an increase in price, assuming the demand side remains unchanged or strengthens. After the previous halvings in November 2012, July 2016 and May 2020, Bitcoin recorded outstanding rallies, reaching new record highs within 12 to 18 months.
What's different this time is that Bitcoin surpassed the previous bull market high of around $69,000 weeks before the halving, making the upcoming event all the more exciting for traders.
According to Greg Magadini, director of derivatives at Amberdata, bullish positioning ahead of the halving means the possibility of a sell-the-news pullback after the event.
“The current positioning, so expanded, is setting the market up for a VERY interesting sell-the-news halving cycle play,” Magadini said in the weekly newsletter. “If there is a real decline, we are threatened with a ∆1 that is too high [futures] OI is liquidated, volatility is RR-skewed in favor of puts, and the basis collapses.”
Magadini added that the Bitcoin options market has also priced in the halving event.
“When we look at the options market, we see an interesting structure. A steep one [IV] Contango before April 26th and a high forward volatility kink for expiry on 04/26. The options market is also pricing in the halving,” Magadini noted.
Implied volatility, or IV, is the market's estimate of future realized volatility. Typically, plotting IVs for different maturities or expirations results in a sloping curve known as contango.
A strong contango before the April 26 expiration means the market is expecting increased BTC volatility heading into the halving. Forward volatility suggests the same.
Learn Crypto Trading, Yield Farms, Income strategies and more at CrytoAnswers
https://nov.link/cryptoanswers
Comments are closed.