Deribit’s Bitcoin volatility index hits lifetime lows, hinting sideways action

Crypto options exchange Deribit’s future-looking Bitcoin (BTC) volatility index — used as a crypto fear gauge of sorts — has reportedly reached its lowest level in two years, indicating a possible lack of price turbulence for Bitcoin in the near future. 

On July 24, crypto derivatives analytics platform Greeks Live noted that the volatility index for both Bitcoin and Ether (ETH) has fallen to a multi-year low of 37%.

Furthermore, the current implied volatility level has fallen to the lowest level in crypto’s history according to the DVOL algorithm, it added.

The Dvol (Volatility Index) for BTC and ETH fell to 37%, the lowest level in history since two years ago, and the current Implied Volatility level, as projected by Dvol’s algorithm, has fallen to the lowest level in crypto’s history.

Continued low liquidity has severely depressed… pic.twitter.com/GdWE4GHXZw

— Greeks.live (@GreeksLive) July 24, 2023

DVOL is the Deribit Implied Volatility Index. It gives an indication of the expected volatility for a crypto asset over the next 30 days by analyzing option activity. In simple terms, the index can indicate investor’s expectations for a crypto’s price turbulence.

Greeks Live noted that continued low liquidity has severely depressed implied volatility (IV) levels for Bitcoin.

This suggests that derivatives traders are not confident that there will be any major moves in crypto markets in the short term and the lack of volatility is likely to continue, it said. 

“It is an indisputable fact that the overall volatility of cryptocurrencies is declining, which will inevitably force the implied volatility of cryptocurrencies to keep going to new lows.”

Related: Cryptocurrency markets’ low volatility: A curse or an opportunity?

Other analysts using different metrics have echoed the sentiment. On July 24, crypto analyst Josh Olszewicz observed that Bitcoin’s weekly Bollinger Bands had contracted to record levels. “This is officially the tightest bbands [Bollinger Bands] have ever been on the weekly timeframe,” he said.

Bollinger Bands are a type of statistical chart characterizing asset prices and volatility over time which consist of a middle trend line with two outer bands that are two standard deviations away.

Crypto markets have been rangebound since mid-March with total capitalization hovering around $1.2 trillion. There has been very little deviation from this level aside from a brief peak in mid-April and an equally brief trough in mid-June.

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