• Bitcoin volatility is rising sharply, signaling a shift toward options-driven trading.
• Analysts say renewed options activity echoes early signs of Bitcoin’s 2021 bull cycle.
• Bitfinex claims the downturn is short-term, with Bitcoin’s long-term fundamentals intact.

Bitcoin volatility has increased dramatically within the last two months. The movement is an indication of a possible shift to options-based trading, which can easily cause volatile and steep price changes. According to market analysts, the recent implied volatility surge is potentially the first indicator that Bitcoin was beginning a new stage of more aggressive trading.

Jeff Park, a market analyst and advisor at Bitwise, observed that after the U.S. approved spot Bitcoin ETFs, the implied volatility of Bitcoin has remained below 80%. The adoption of ETFs was believed by many to bring sanity to the price movements and make the market more stable. 

Source: Jeff Park

Volatility Signals a Return to Options-Led Trading

However, according to a chart posted by Park, the volatility is again going up with the latest statistics almost reaching the 60% mark. He claimed that this change might be the beginning of a new options-based cycle.

The last significant occurrence of this tendency, noted by Park, was January 2021. Back then, that pushed the Bitcoin into a rapid ascendancy owing to the strength of options positioning. That spurt initiated the bull market of 2021 which in turn propelled Bitcoin to an all-time high of 69,000 in November 2021. 

However, it is not just spot buying that forms the largest, most significant moves ever to hit BTC, which Park states are often driven by options flows. He thinks that the current volatility curve suggests premature indications that BTC will become option-controlled again.

Also Read: Bitcoin (BTC) Whale Owen Gunden Exits $1.3 billion BTC Holding as Institutions Raise ETF Stakes

Bitcoin Volatility Defies ETF Stability Claims

This concept is contrary to the conventional wisdom that ETFs and an increasing formation of institutional investors have forever smooths out the volatility of BTC. Those who support that opinion frequently state the fact that large price movements will be evened by passive inflows and more established market structures. 

Binance CEO Richard Teng has also stated that increased volatility is not peculiar to Bitcoin. Through him, most asset classes in the world are recording high volatility levels as markets respond to the wider economic forces in the world.

Source: Deribit

Bitcoin drops below $86,000 on Thursday has put an extra strain on the market. The fear of many a trader is the fall may bring about further weakness in the weeks to come. 

Others are even apprehensive of the initial phases of a new bear market. There are various explanations by the analysts about the downturn. These are liquidations of high leverage positions, trades held long-term to make profits, and macroeconomic pressure.

Although the level has declined, analysts of Bitfinex believe that the present downward trend is caused by short-term players. Instead of an indicator of declining institutional demand, they refer to the move as tactical rebalancing. 

They claim that there are strong long term fundamentals. It is said that the broader adoption narrative of Bitcoin is still intact, as well.

Bitfinex claimed that the recent price action does not harm the long-term perspective of BTC. They think that the fundamental drivers of the asset, which include scarcity, institutional interest, and long-term demand, would still drive its growth in the future.

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