Joshua Lim, head of derivatives at top-tier crypto broker Genesis Trading and former Circle exec, shares his take on volatility dynamics for Bitcoin (BTC) and Ethereum (ETH).
Hedge funds are not interested in buying Bitcoin (BTC) in low 40s
Mr. Lim has taken to Twitter to share his vies on Bitcoin (BTC) implied volatility dynamics in recent months. Implied volatility should be considered an indicator of the market’s view of the likelihood of changes in a given asset’s price.
1/ BTC and ETH long-dated implied vols are plumbing multi-year lows. what is causing this and where do we go from here? a thread: pic.twitter.com/sIhZq6Aky8— Joshua Lim (@joshua_j_lim) January 15, 2022
The analyst noticed that, as Bitcoin (BTC) and Ethereum (ETH) are changing hands in the middle of yearly price range ($25,000-$69,000 for Bitcoin; $1,900-$4,600 for Ethereum), large-scale players are not interested in buying.
As such, there is no major catalyst for Bitcoin (BTC) volatility active right now. Bitcoin’s (BTC) implied volatility dropped from 90 to 70 in less than two months.
This looks like the most radical retracement since early March 2021.
“Not screaming buy,” but…
Historically, when implied volatility metrics bottom and start surging again, it is a huge positive driver for the price of the asset. Major reversals were registered in October 2020 and April 2021.
The entire picture does not “scream buy” for the analyst but still looks attractive in the mid-term perspective. Once the implied volatility metric rockets, it can almost double (reaching major highs at 120) in weeks.
Bitcoin, the flagship cryptocurrency, is changing hands at $42,790 (up 1.4% in 24 hours), while Ethereum (ETH) added 1.24% and attempts to hold above the $3,300 level.