Bitcoin Volatility Surges: Is Options Market Influence Back?

Bitcoin Volatility Returns: Are Options Driving the Price Action?

Bitcoin's (BTC) price volatility has noticeably increased in the last two months, sparking speculation about a potential resurgence of options market influence on price movements. This suggests the possibility of significant market shifts in both upward and downward directions.

According to Jeff Park, a market analyst and advisor at Bitwise investment firm, Bitcoin's implied volatility did not exceed 80% after the approval of Bitcoin ETFs in the United States. However, a chart shared by Park indicates that Bitcoin's volatility has climbed back up to around 60 at the time of this writing.

Options Impact on Price Surges

Park pointed to Bitcoin's explosive price surge in January 2021, which ignited the 2021 bull run that propelled BTC to new all-time highs and peaked at $69,000 in November of that year. He believes this surge was largely driven by options positioning.

He stated: "Ultimately, it is options positioning, not just spot flows, that creates the decisive moves that carry Bitcoin to new highs. It’s possible that for the first time in nearly two years, the volatility surface is flickering with early signs that Bitcoin might become option-driven again."

Challenging the Market Stability Theory

This analysis challenges the theory that the presence of ETFs and institutional investors has permanently stabilized Bitcoin's price volatility and reshaped the market structure to reflect a more mature asset class, supported by passive inflows from investment vehicles.

Volatility Increase Amid Market Downturn

The increase in volatility coincides with a market downturn, raising concerns about a potential prolonged slump. Binance CEO Richard Teng notes that the heightened volatility in the Bitcoin market aligns with levels across all asset classes.

Bitcoin's price plummeted below $85,000 on Thursday, fueling anxieties about further declines in the coming weeks and potentially marking the beginning of a new Bitcoin bear market.

Analyses of Downturn Causes

Analysts have proposed several theories regarding the causes of the downturn, including the liquidation of highly leveraged positions in derivatives markets, long-term Bitcoin holders selling off their holdings, and macroeconomic pressures.

Analysts at the cryptocurrency exchange Bitfinex suggest that the current decline in Bitcoin's price is due to short-term factors and indicates a "tactical rebalancing" rather than institutional flight or a lack of demand.

The analysts emphasize that this does not hinder Bitcoin's long-term fundamentals, price appreciation, or institutional adoption trends.