Bitcoin’s Unique Volatility Profile in Focus as VIX and MOVE Spike

Bitcoin’s dip once more is noteworthy, as it shows minimal signs of anxiety or alarm in contrast to the stock and bond markets. Their volatility indicators, sometimes referred to as “fear meters,” have experienced significant jumps instead.

Even though the prices have decreased, people haven’t rushed to buy protective put options or other derivatives with downside protection as they typically do in standard markets. The level of implied volatility is determined by the desire for such options.

In recent times, the Chicago Board Options Exchange’s CBOE Volatility Index (VIX), which gauges anticipated market volatility over a month based on S&P 500 index options, has surged from an annualized 87% to 110%. This rise comes after the S&P 500 index suffered a 5.4% loss during the current month.

The MOVE index, indicating the predicted volatile movement in U.S. Treasury bonds, has risen from 94% to 111%, coinciding with a decrease in bond prices and a subsequent rise in yields.

An increasing divide between Bitcoin’s decreasing volatility (DVOL) and its price rise does not automatically indicate that Bitcoin is perceived as a less risky asset or a sign of a bull market. Since 2023, Bitcoin’s implied volatility has shown a consistent correlation with its price escalation.

In the current bull market, Bitcoin’s price trend and volatility are closely linked. As Bitcoin’s value increases in a potential parabolic upward movement, its volatility also rises. Conversely, when Bitcoin’s price declines during a sell-off, its volatility decreases as well. David Brickell, the head of international distribution at FRNT Financial in Toronto, made this observation.

“The downside risk in Tradfi (Traditional Finance) remains significant, with price drops tending to be more pronounced than gradual gains, according to Brickell.”

MOVE spike matters

Bitcoin optimists expecting another upward trend may want to keep an eye on the MOVE index continuing to climb.

When the volatility of U.S. Treasury notes increases significantly, these securities become more valuable as collateral and influence various financial systems around the world. Consequently, this can result in stricter financial conditions and make investors more cautious about taking risks.

The founders of LondonCryptoClub explained in their latest newsletter on Monday that Treasuries, which are a type of government debt security, are frequently utilized as collateral for markets to obtain loans and amplify their positions while trading stocks and other more risky investments.

When the volatility of bonds increases, a larger reduction is made to the collateral’s value, limiting the amount of borrowed funds that can be obtained against it. Consequently, there is less liquidity in the financial system. Simultaneously, the strengthening dollar puts pressure on both stocks and bitcoin.