While bitcoin has gained 3% so far this week, the overall trading environment remains dull, with volatility hovering at multi-year lows.
Ten-day realized volatility, a historical metric, is now at just 20%, the lowest level for two years. That’s “a low that’s only preceded in [September and October] 2018,” the Singapore-based quantitative trading firm QCP Capital said on its Telegram channel.
Back in the autumn of 2018, the low-volatility consolidation ended with a big drop to below $6,000. This time, though, options traders are anticipating a breakout on the higher side.
“With the rise in one-month implied volatility this past week (on the back of more call buying) resulting in a notable divergence with realized volatility, a similar bang to end the lull is what option traders are betting on (this time with an upside break),” said QCP Capital.
Bitcoin’s one-month implied volatility has risen from 46% to 55% over the past six days, according to data provided by the crypto derivatives research firm Skew.
Implied volatility is the market’s expectation of how risky or volatile an asset will be in the future and is calculated by taking an option and the underlying asset’s price along with other inputs such as time to expiration.
Meanwhile, the one-month realized volatility has declined from 78% to 35%. Realized volatility represents the price volatility that has actualized in the past.