The cryptocurrency market is bracing for more volatility as the Chicago Board Options Exchange’s (CBOE) Volatility Index (VIX) reaches its highest level since the initial COVID-19 market panic. Analysts warn that this surge in volatility is a result of broader macroeconomic instability that has swept through global markets.
Bohan Jiang, Abra’s Head of OTC Options Trading, predicts that elevated implied volatility will persist in the cryptocurrency markets until macroeconomic conditions stabilize. Jiang noted that many options market participants were unprepared for the recent downturn, which has been exacerbated by global market turmoil.
“In recent weeks, there was little demand for downside protection, as traders focused on bullish catalysts. Bitcoin and ether saw increased implied volatility ahead of major events, but the options market was caught off guard by the current downturn,” Jiang told The Block.
The VIX has surged to over 65 points in the past 24 hours, reflecting heightened market anxiety. This is the highest level the VIX has reached since the onset of the COVID-19 pandemic, signaling significant market stress. The crypto options market, which had previously sold off volatility aggressively, is now facing a sharp adjustment.
Abra’s Head of Trading, Bob Wallden, highlighted that the cryptocurrency market was slow to react to the shifting macroeconomic narrative. With minimal hedging of downside risks, the market’s previous bias towards an upside move left it vulnerable.
“Recent movements in bitcoin and ether perpetual futures funding rates turning negative indicate a sharp correction. This adjustment has reduced the profitability of market-wide basis trades,” Wallden explained. He noted that the current downturn reflects how markets were positioned for higher moves around specific events, leading to a washout of long positions and adjustments in collateral.
The recent volatility is also attributed to several macroeconomic factors, including the surging Japanese yen, disappointing U.S. jobs data, concerns about the Federal Reserve’s ability to manage a soft landing, and geopolitical tensions. The Japanese yen surged to a seven-month high against the dollar, as traders unwound carry trades, heightening market volatility.
QCP Capital analysts and Bitfinex analysts both pointed to macro-driven factors as primary contributors to the cryptocurrency market downturn. The combination of poor U.S. unemployment data and the deflating AI bubble has further fueled market instability.
“Low liquidity during the weekend, when institutional activity is minimal, has exacerbated the downturn. This led to a wave of margin calls on long positions,” said YouHodler Chief of Markets Ruslan Lienkha. He noted that while a corrective rebound in bitcoin’s price might occur, it will likely be constrained by prevailing market pessimism.
As the market navigates these turbulent conditions, analysts recommend preparedness for further volatility and potential adjustments in trading strategies.
