Deribit’s Bitcoin Volatility Index Hits Lifetime Low, Indicating Sideways Action

Crypto options exchange Deribit’s forward-looking bitcoin (BTC) volatility index – used as a crypto fear gauge of sorts – has reportedly hit its lowest level in two years, indicating a possible lack of price turbulence for bitcoin in the near future.

On July 24, crypto derivatives analytics platform Grex Live noted that the volatility index for both bitcoin and ether (ETH) fell to a multi-year low of 37%.

Furthermore, the current implied volatility level according to the DVOL algorithm has dropped to the lowest level in the history of crypto.

The DVOL (volatility index) for BTC and ETH fell to 37%, the lowest level in history since two years ago, and the current implied volatility level, as predicted by DVOL’s algorithms, has fallen to the lowest level in the history of crypto.
Persistent low liquidity has severely discouraged… pic.twitter.com/GdWE4GHXZw

— greeks.live (@greekslive) 24 July 2023

DVOL is the Deribit Implied Volatility Index. It gives an indication of the expected volatility for a crypto asset over the next 30 days by analyzing options activity. In simple terms, the index can indicate investors’ expectations for volatility in the price of cryptos.

GrexLive notes that continued low liquidity has severely reduced the implied volatility (IV) level for bitcoin.

This suggests that derivatives traders are not confident that there will be any major moves in the crypto markets in the near term and the volatility crunch is likely to continue, it said.

“It is an indisputable fact that the overall volatility of cryptocurrencies is declining, which will inevitably force the implied volatility of cryptocurrencies to move to new lows.”

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Other analysts using different metrics echoed the same sentiment. On July 24, crypto analyst Josh Olszewicz saw Bitcoin’s weekly Bollinger Bands have shrunk to record lows. “This is officially the tightest band (Bollinger Bands) ever on the weekly time frame,” he added.

Bollinger bands are a type of statistical chart that depicts asset prices and volatility over time that consist of a median trend line with two outer bands that are two standard deviations away.

The crypto market has been in a range since mid-March and the total capitalization hovers around $1.2 trillion. There has been little deviation from this level except for a brief peak in mid-April and an equally brief trough in mid-June.

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