Bitcoin (BTC), the largest cryptocurrency by market capitalization, hit a record high above $109,000 on Monday, sending both implied volatility and realized volatility to the highest levels since the yen carry trade was reduced in August.
Realized volatility is the historical price fluctuations of bitcoin over the last 30 days. It reached 67 on the Bitcoin Volatility Index (BVOL) on Deribit. Bitcoin Volmex’s Implied Volatility Index (BVIV) reached a high of 71. Implied volatility is the market’s expectation of future price fluctuations arising from the price of options. Both indices were up about 2% on the day.
“The positive correlation between bitcoin price and implied volatility remains intact. It is a sign that traders are looking for options, particularly calls, as risk reversals show that calls are trading at a premium in related to put options that offer downside protection,” said Omkar Godbole, market analyst. and Chief Markets Editor at CoinDesk
Additionally, short duration calls are priced higher than longer duration calls, a rare occurrence that indicates strong short-term bullish sentiment, according to Andre Dragosch, European head of research at Bitwise. Open interest in options has increased by 44,000 BTC, reflecting increased speculative activity, Dragosch noted.
Traders are expecting a quick price gain following President-elect Donald Trump’s possible announcement of a strategic bitcoin reserve.
Trump’s “influential use of social media, which has historically moved markets, adds to the uncertainty surrounding the coming days,” suggests GCR trader Mitch Galer. “Speculation on a strategic crypto reserve and possible deregulation, crypto markets are optimistic about further gains this year.”
