Bitcoin (BTC), the top cryptocurrency by market value and trading volume, is considered relatively stable compared to other digital assets, protecting traders' portfolios from the volatility of the broader market.
However, Bitcoin has recently become more volatile than Ethereum (ETH).
Bitcoin's 30-day annualized or realized volatility rose to nearly 60% late last week, nearly 10 percentage points higher than Ethereum's 30-day realized volatility. This is the highest spread in at least a year, according to data tracked by Paris-based Caico. Historical volatility indicates the degree of price turbulence observed over a particular period of time.
Bitcoin and Ether volatility has increased after the U.S. Securities and Exchange Commission (SEC) greenlit nearly a dozen spot Bitcoin exchange-traded funds (ETFs), allowing traders to gain exposure without owning the cryptocurrency. The spread turned positive within a few weeks.
Since then, traders have focused squarely on spot ETF activity, with net inflows creating upside volatility in Bitcoin and the broader crypto market. On the other hand, the decreasing likelihood of the SEC approving an ETH ETF by May appears to be discouraging Ethereum traders.
The upcoming reward halving of the Bitcoin blockchain, a once-in-four-year event that reduces the pace of BTC emissions per block by 50%, could be another reason for the cryptocurrency's relatively high volatility. .
On April 21st, the embedded code will reduce the per-block reward paid to miners from 6.25 BTC to 3.125 BTC, halving the current $26 billion in annual revenue for miners, according to ByteTree.
Assuming the demand side remains unchanged or strengthens, the consensus is that a halving is bullish because it would halve the pace of supply expansion, creating an imbalance between supply and demand that favors price increases. Bitcoin has recorded an impressive rally, hitting new 12- to 18-month highs following previous halvings in November 2012, July 2016, and May 2020.
The difference this time is that Bitcoin surpassed the previous bull market peak of around $69,000 a few weeks before the halving, making the upcoming event even more exciting for traders.
Greg Magaddini, director of derivatives at Amberdata, said the bullishness ahead of the halving means there could be a “news-selling” pullback after the halving.
“The current positioning is so extended that the market is creating a very interesting 'news-selling' halving cycle play,” Magadini said in his weekly newsletter. “If there is a full-scale rebound, we would expect an excess of Δ1.” [futures] OI is liquidated, volatility RR tilts towards puts, and the base collapses. ”
Magadini added that the Bitcoin options market is also pricing in a halving event.
“If you look at the options market, you see an interesting structure. [IV] Contango through 4/26 and a kink in high forward volatility towards the 4/26 expiry. The options market is also pricing in a halving event,” Magadini said.
Implied volatility (IV) is the market's estimate of future realized volatility. Plotting IV for different time periods or expiry dates typically produces an upward-sloping curve called contango.
The sharp rise in contango ahead of the April 26 deadline means the market is expecting increased volatility in BTC in the lead-up to the halving. Forward volatility suggests the same thing.
