• Deribit’s BTC DVOL Index, a measure for volatility expectations, is at its lowest level since early February.
  • The continued volatility meltdown and price decline suggests a lack of demand for options.
  • The DVOL may be lifted by a renewed rise in BTC to $70,000.

Stock traders who have been in the business for a while are probably aware that market corrections tend to be accompanied by a rise in the VIX index. This index measures volatility expectations.

This is not the case with the bitcoin market even though the cryptocurrency prices are positively correlated with technology stocks.

Bitcoin’s price, for example, has fallen 10% in the last four weeks from $70,000. Deribit’s Bitcoin Volatility Index DVOL – an options-derived measurement of expected price turbulence in the next 30 day – has fallen from 53% annualized to 42%. This is the lowest level since early February.

The demand for derivatives or options that allow the buyer to purchase or sell an asset at a future date at a fixed price is a positive factor in determining implied volatility. Call options confer the right of purchase, while put options confer the right of sale.

The DVOL’s decline during the price correction indicates a calmer market, where investors are less likely to panic and seek out protective put bets or hedge bets. Bitcoin’s slow and steady decline, rather than a rapid one, has led investors to purchase options in order to benefit from the rising volatility.

David Brickell told CoinDesk that since BTC has been fading from its highs, the market is range-bound with low realized volatility. Brickell is head of international distribution for Toronto-based cryptoplatform FRNT Financial. There is little appetite for volatility in the summer, and structurally, overwriters tend to sell vol. In the absence of demand, we fall lower.

Volatility Selling is an investment strategy that involves selling or writing options on a dull market to lower implied volatility. The seller gets a premium in exchange for promising to compensate a buyer in the event of wild price swings. These strategies usually involve writing calls over top of holdings on the spot market.

Brickell believes that a new upswing of BTC above $70,000 would likely boost the DVOL implied volatilty index. BTC’s value has been positively correlated to the DVOL Index throughout this bull-cycle.

Brickell stated that “we’ll need to see BTC testing at the top of range and threatening a break even higher to break this vol lethargy.”

Stephen Alpher edited the book.