After a rocky start to the month, traders in the options market are betting on smooth sailing ahead for Bitcoin and Ethereum.
Using the market yardstick known as the volatility risk premium, Bitfinex analysts say they noticed big changes in the two most popular cryptocurrencies.
Bitcoin
For Bitcoin, the premium has decreased from 15% on April 30, to just 2.5%. The drop suggests investors expect less volatility in the immediate future, Bitfinex analysts told DL News.
The outlook for stable markets is a U-turn after jitters including Federal Reserve policy and tensions in the Middle East helped send Bitcoin to a two-month low of $56,800.
Worries linked to last month’s Bitcoin halving have eased, leading some to forecast a price as high as $180,000 by year’s end.
”Future uncertainties are considered with less concern,” the analysts wrote in a note.
“This reflects a broader expectation of more predictable market conditions.” In other words, traders see Bitcoin ticking along in a predictable pattern.
Ethereum
Similarly, Ethereum’s VRP has fallen from 18% to 8.5%. While Ethereum’s VRP has also plunged, it didn’t “collapse” as Bitcoin’s did.
The difference suggests investors anticipate relatively higher price fluctuations for the world’s second-largest crypto, the analysts said.
That’s because an additional layer of uncertainty centres around the likelihood of a US Securities and Exchange Commission approval for spot Ethereum exchange-traded funds. An SEC decision on the ETFs is expected later this month.
The decision could impact Ethereum’s price more directly, Bitfinex analysts said.
VRP
The VRP is the difference between options’ implied volatility and an underlying asset’s realised volatility.
“Essentially, the VRP quantifies the premium that investors demand as compensation” for the additional risks of rocky markets ahead, the analysts wrote in a research note.
Investors use VRP, typically calculated using options data, to calibrate their risk exposure.
What VRP means for prices
Declines in VRP are indicative of expected market sentiment towards future price fluctuations, but were not mirrored by substantial price movements, “suggesting a stabilisation effect,” the analysts wrote.
Some analysts have theorised that because low volatility is linked to traders’ higher willingness to take on risk, an environment with fewer market swings tends to be accompanied by rising prices.
Sebastian Sinclair is a markets correspondent for DL News. Have a tip? Contact Seb at sebastian@dlnews.com.
