The post Bitcoin volatility is in meltdown, but downside protection still commands a premium appeared on BitcoinEthereumNews.com.
Bitcoin’s price has stopped falling in recent weeks, and while it looks as though options traders aren’t expecting any big moves in either direction in the next few weeks, protection against declines is still not cheap. The bitcoin price has held between $62,000 and $66,000 since early July. Over the weekend, Volmex’s BVIV index, a gauge of bitcoin’s annualized 30-day implied volatility, fell to 35.59%, the lowest since September. The metric, a crypto analog to the Cboe Volatility Index (VIX), which measures implied volatility in U.S. equities, is, like its Wall Street equivalent, known as a ‘fear index’ because options activity reflects demand for protection against price moves. The greater the nervousness, the greater the demand and the higher the index. The current BVIV level is a sharp slide from early February, when it spiked above 90% as bitcoin tumbled from $90,000 to nearly $60,000 and traders rushed into options to hedge against violent price swings. A supply-demand imbalance BVIV’s recent slide is the result of a “broad supply-demand imbalance” in the crypto options market, according to Griffin Sears, the head of derivatives at cryptocurrency prime brokerage FalconX. With Bitcoin’s price stubbornly range-bound, the appetite for “directional optionality,” or bets on big price moves in either direction, has evaporated, he said. Directional optionality involves traders buying call or put options, or both, to profit from anticipated big moves in the underlying asset, but they aren’t doing that now. The demand for bitcoin options has weakened, and this is reflected in BVIV’s decline. A call option offers a way of buying an asset on the cheap should the price rise, in return for a small upfront cost. A put option offers insurance against price drops in the underlying asset. Despite the weaker demand, the supply remains elevated. Although every option contract…