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Investors Are Not in a Rush to Hedge
According to the Bitcoin 30-Day Implied Volatility Index (BVIV) released by Volmex, as of Wednesday, this index has fallen to an annualized 36.5%, the lowest level since October 2023. Despite recent U.S. economic data signaling risks of stagflation, there has not been a notable hedging sentiment in the Bitcoin options market.
In the options market, a decline in implied volatility typically represents a weakening expectation among traders for significant future price fluctuations, leading to a relative cooling of demand for hedging instruments such as options. This phenomenon is also observed in the U.S. stock market, where the CBOE VIX index (used to measure the 30-day volatility of the S&P 500) has retreated from a high of 21 last Friday to 17, indicating that overall risk sentiment has not expanded.
However, this observation contrasts with the analysis of Dr. Sean Dawson, research director at Derive platform. According to a previous report by Zombit, Dawson pointed out that the Bitcoin options market exhibits a significantly bearish structure, with the number of outstanding put options being nearly five times that of call options, with large positions concentrated at lower strike prices of 95,000, 90,000, and 80,000. This indicates that a considerable number of traders are betting on or hedging against Bitcoin falling below 100,000.
At first glance, these two perspectives seem contradictory, but they actually reflect different aspects of the options market. Many of the bearish positions mentioned by Sean Dawson may not originate from hedging demands but rather from selling strategies (such as investors selling out-of-the-money puts, earning premiums as long as Bitcoin does not actually drop to those levels).
As the proportion of such “conservative yield strategies” in the market increases, it can depress implied volatility because the options market is experiencing a sentiment of “stability, not tension.” In other words, even if some participants are setting up defensive positions, the overall market’s expectation for dramatic price movements is actually quite low, which explains why volatility can continue to decline even amid a buildup of bearish positions.
Bitcoin Volatility and Price Break the Traditional “Positive Correlation” Structure
It is noteworthy that the price of Bitcoin has risen from 70,000 to over 110,000 since last November, while volatility has continued to decline, indicating a structural change in the market.
Traditionally, Bitcoin’s price and volatility have been positively correlated: when the price rises or falls, volatility expands simultaneously. However, this relationship has inverted in recent months, with analysts pointing out that this is related to an increased demand for structured products (such as yield strategies from selling out-of-the-money options).
Is “Bull Market Style Compression” of Volatility the New Normal?
Analysts believe that this reverse change of “price increase, volatility decrease” is making Bitcoin behave more like traditional financial market assets. In the U.S. stock market, similar situations often occur during stable upward bull market phases, where investors pursue “yield strategies” rather than “volatility arbitrage,” further suppressing options pricing. This indicates that the Bitcoin market may be entering a new normal: even as prices rise, the options market remains reluctant to price in risks of significant future volatility.