bitcoin Traders are finally taking the price drop seriously. The cryptocurrency fear indicator, the BVIV index, demonstrates this.
BVIV, which measures the cryptocurrency’s 30-day implied or expected volatility, rose nearly 20% on Tuesday to 46.45%. It is the largest single-day increase since February 5, according to data source TradingView.
Here’s why it’s important.
For about two months, bitcoin market sentiment was calm. Even as BTC fell from its early May high of $82,000 to $75,000 last week, market sentiment barely budged. In fact, BVIV hovered around its year-to-date low of 40% during that move.
In other words, it was an orderly sale. No panic. But that changed on Tuesday when the BTC spot price fell more than 6% to $66,000.
The BVIV index exploded with that price drop. The index is essentially an indicator of fear. When it rises, traders aggressively buy options to protect against further declines. Tuesday’s nearly 20% rise indicates that protective buying has returned.
To put Tuesday’s move in context: On February 5, BVIV rose more than 50% in a single day, reaching more than 90% as bitcoin plummeted toward $60,000. Tuesday’s jump is nowhere near that level. But the direction of the move is what should worry traders right now.
VIX-like behavior
Think of BVIV as the bitcoin version of Wall Street’s VIX fear indicator. Since the US bitcoin ETFs launched more than two years ago, institutional players have flooded the market. That institutionalization has created something interesting: BVIV is now moving in the opposite direction to the bitcoin spot price with increasing consistency. Prices go down, fear increases. The price rises, fear fades.
That’s a relatively new dynamic for cryptocurrencies, but not so much on Wall Street, where the S&P 500 and its fear gauge, the VIX, have been inversely correlated for decades.
The bottom line is that after two months of unusual calm, fear is returning to the bitcoin market. It remains to be seen whether Tuesday’s spike is a one-day blip or the start of a regime of sustained volatility.
