Bitcoin's Volatility Index Hits Lowest Since February Amid Price Drop

According to CoinDesk, Deribit's BTC DVOL index, which gauges volatility expectations, has dropped to its lowest level since early February. This decrease in volatility, coupled with a price drop, indicates a lack of demand for options. A resurgence in BTC's price to $70,000 could potentially boost the DVOL index.

In the stock market, corrections are usually accompanied by an increase in metrics like the VIX index, which measures volatility expectations. However, this is not the case in the bitcoin market, despite the fact that cryptocurrency prices are often positively correlated with technology stocks. For example, bitcoin's price has fallen 10% from over $70,000 in the past four weeks. During this time, Deribit's bitcoin volatility index DVOL has decreased from an annualized 53% to 42%, marking its lowest point since early February.

Implied volatility is positively influenced by the demand for options or derivative contracts. These contracts give the buyer the right to purchase or sell the underlying asset at a predetermined price at a future date. The decrease in the DVOL index amid the price correction suggests a calm market environment, with investors less likely to panic or seek out protective puts or hedging bets.

David Brickell, head of international distribution at Toronto-based crypto platform FRNT Financial, explains that the market has been range-bound with low realized volatility since BTC started to decline from its highs. He notes a lack of appetite to buy volatility into the summer months, and in the absence of real demand, the market drops lower.

Volatility selling is a common crypto strategy where investors sell or write options in a dull market, thereby lowering implied volatility. The seller receives a premium for promising to compensate the buyer in case of wild price swings. According to Brickell, a renewed upswing in BTC to levels above $70,000 will likely revive demand for options and boost the DVOL implied volatility index. BTC's price has been positively correlated with the DVOL index throughout this bull cycle.