Bitcoin Volatility Spikes to 71% Ahead of Halving Event

Bitcoin's Implied Volatility Hits 71% as Market Anticipates Halving, Signaling Uncertainty and Potential Price Swings

By Barry Stearns

4/12, 16:43 EDT
Bitcoin / U.S. dollar

Key Takeaway

  • Bitcoin's implied volatility surged from 59% to 71% in two days, indicating rising trader nervousness ahead of the halving event.
  • The increase in options premiums suggests traders are seeking protection against potential price swings, possibly expecting a downturn.
  • Historical data shows mixed short-term impacts but bullish long-term trends post-halving, though only three events make conclusions tentative.

Market Braces for Bitcoin Halving

The crypto market is on edge as the Bitcoin halving event approaches, an occurrence that historically has been bullish for the leading cryptocurrency. According to Kaiko Research, the implied volatility for Bitcoin options has seen a significant uptick, reversing the downward trend observed in the previous week. This surge in volatility, as explained by Adam McCarthy, a research analyst at Kaiko, signals a growing uncertainty among traders regarding Bitcoin's price direction. The increase in implied volatility, particularly for contracts expiring in the next two weeks—from 59% to 71%—indicates a heightened expectation for near-term volatility. McCarthy notes, "In this case, it’s likely more bearish as traders are uncertain, but are willing to pay more for options to get protection against price swings."

Historical Context and Speculation

The upcoming halving, expected around April 20, will see Bitcoin mining rewards halve, potentially impacting the cryptocurrency's supply and, by extension, its price. Bartosz Lipinski, founder and CEO of Cube Exchange, highlights the unique nature of this event, suggesting that it could lead to increased price pressures due to the contraction in supply. Previous halvings have shown a mixed short-term impact but a generally bullish long-term trend. However, Kaiko cautions that with only three prior events, it's challenging to draw definitive conclusions, especially considering other bullish factors at play in the industry.

Volatility Surges Ahead of Halving

In an unusual twist, Bitcoin has become more volatile than Ether as the halving nears, with its 30-day historical volatility rising to nearly 60%, outpacing Ether's by almost 10 percentage points. This shift in volatility dynamics comes after the U.S. Securities and Exchange Commission approved several spot Bitcoin ETFs, drawing increased attention to Bitcoin. The halving event, which will reduce miner rewards to 3.125 BTC, is anticipated to create a demand-supply imbalance, potentially driving up prices. Greg Magadini, director of derivatives at Amberdata, suggests that the market's bullish positioning ahead of the halving could lead to a "sell-the-news" pullback post-event.

Options Market Anticipates Halving Impact

The Bitcoin options market is signaling expectations of weakness leading up to the halving, followed by a potential rally. Deribit's data shows a significant build-up in open interest for put options at strike prices of $61,000 and $60,000, expiring just before the halving. This suggests traders are hedging against or speculating on a price drop. Post-halving, the options market appears more bullish, with calls at $70,000 and $80,000 gaining popularity. The market's focus post-May will likely shift towards macroeconomic factors and organic demand, with a notable concentration of open interest in calls for December and March expiries, indicating long-term bullish expectations.

Street Views

  • Adam McCarthy, Kaiko Research (Neutral on Bitcoin):

    "An increase generally means market participants are less confident on the direction of prices... When implied volatility rises, traders are usually willing to pay more to protect existing positions or to speculate on potential prices moves — up or down."

  • Bartosz Lipinski, Cube Exchange (Bullish on Bitcoin):

    "I think [the spike in Bitcoin expiries] is really related to people betting on the demand of Bitcoin on the day of the halving, where it will be even more expensive because the supply will be contracted. It’s a very unique event in the Bitcoin history because you have two forces that are effectively will be creating pressures on the price that’s already normally pretty elastic."