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- The inflows into spot ETFs and the upcoming halving of the Bitcoin blockchain appear to have led to BTC exhibiting greater volatility than Ether.
Bitcoin (BTC), recognized as the foremost cryptocurrency by market capitalization and trading activity, is generally expected to maintain a level of stability compared to other digital currencies, thereby safeguarding a trader’s portfolio from significant fluctuations in the overall market.
Nonetheless, bitcoin has shown increased volatility compared to ether (ETH) in recent times.
Last week, Bitcoin’s annualized 30-day historical or realized volatility climbed to nearly 60%, exceeding ether’s 30-day realized volatility by almost 10 percentage points.
This represents the largest gap in at least a year, based on data from Paris-based Kaiko. Historical volatility reflects the extent of price fluctuations observed over a defined timeframe.
The bitcoin-ether volatility spread turned positive weeks after the U.S. Securities and Exchange Commission (SEC) approved nearly a dozen spot bitcoin exchange-traded funds (ETFs), enabling traders to gain exposure to the cryptocurrency without direct ownership.
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Since that time, traders have been primarily focused on the developments within the spot ETFs, with net inflows contributing to upward volatility in bitcoin and the wider crypto market.
Meanwhile, the decreasing likelihood of the SEC approving an ETH ETF by May appears to have disheartened ether traders.
The forthcoming reward halving on the Bitcoin blockchain, a quadrennial occurrence that cuts the rate of BTC issuance per block by 50%, may also be a factor contributing to the relatively heightened volatility of the cryptocurrency.
On April 21, the embedded code will reduce the per-block reward for miners from 6.25 BTC to 3.125 BTC, halving the miners’ earnings, which, according to ByteTree, currently stands at $26 billion annually.
The prevailing view is that halving is bullish as it reduces the rate of supply growth, creating a demand-supply imbalance that favors a price increase, provided that demand remains constant or strengthens.
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Historically, Bitcoin has experienced significant rallies, achieving new all-time highs within 12-18 months following previous halvings, which took place in November 2012, July 2016, and May 2020.
This time, however, bitcoin has already surpassed the previous bull market peak of approximately $69,000 weeks prior to the halving, making the upcoming event particularly intriguing for traders.
According to Greg Magadini, director of derivatives at Amberdata, the bullish positioning ahead of the halving indicates the possibility of a “sell-the-news” pullback following the event.
“The current positioning being so extended is setting the market up for a VERY interesting ‘sell-the-news’ halving cycle play,” Magadini stated in the weekly newsletter.
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“Should there be a real pullback, we stand to see excessive ∆1 [futures] OI become liquidated, volatility RR-skew to favor puts and a collapsing basis.”
Magadini further mentioned that bitcoin’s options market has also been factoring in the halving event.
“If we look at the options market, we see an interesting structure. A steep [IV] Contango before 4/26 and a high forward volatility kink for the 4/26 expiration. The options market is pricing in the halving event as well,” Magadini observed.
The implied volatility, or IV, represents the market’s expectation of future realized volatility. Typically, plotting IVs for various durations or expirations results in an upward-sloping curve known as a contango.
A steep contango leading up to the April 26 expiration indicates that the market anticipates heightened BTC volatility as it approaches the halving. The forward volatility supports this expectation.
Disclaimer: The information provided is not trading advice. Bitcoinworld.co.in holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decisions.
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