- An analyst stated that since the VIX hit its highest points since the COVID-19 market panic, there could be more volatility in the cryptocurrency market.
- The recent decline in the cryptocurrency market was unexpected, as evidenced by the recent decline in the demand for downside protection in the options market, the expert continued.
The macroeconomic collapse that engulfed international markets over the weekend was initially felt in the Bitcoin market, and one analyst predicts that volatility will only increase.
According to Bohan Jiang, Head of OTC Options Trading at Abra said, “I anticipate sustained elevated implied volatility in the cryptocurrency markets until the macro side calms down.”
Jiang went on to say that most players in the options market were unprepared for the most recent macroeconomic crisis.
The market was positioned in topside calls, with bitcoin implied volatility rising to the high 60s ahead of Trump’s Bitcoin BTC +2.74% Nashville speech and ether implied volatility rising to the low 70s ahead of the introduction of spot Ethereum exchange-traded funds (ETFs). Jiang pointed out that traders had been concentrating on bullish catalysts, with little demand for downside protection in the options market in recent weeks.
The options trader talked about how the recent macroeconomic downturn caught the derivatives market off guard, as seen by the sharp increase in the CBOE Volatility Index (VIX) of the Chicago Board Options Exchange. The VIX has risen to over 65 points in the last day, the greatest level since the market panic that accompanied the start of the COVID-19 epidemic.
Even while the VIX had already been grinding higher during the previous week due to a number of macro developments, Jiang noted that the crypto options market had sold vol aggressively after both incidents resulted in spot selling off back into its former range.
Cryptocurrency market’s tardy response to the unfolding macroeconomic scenario, according to Bob Wallden, Abra’s Head of Trading, is linked to the slump in derivatives.
According to Wallden, the cryptocurrency market was still biased upward as the overall story changed, with little to no hedging of downside risks.
Wallden mentioned the negative change in the funding rates for bitcoin and ether perpetual futures during the last 24 hours. According to him, this year’s largest decline in funding rates has decreased the profitability of trades involving the entire market.
Following the unsatisfactory U.S. jobless figures released last Friday, macro sentiment has also declined. Furthermore, analysts at QCP Capital stated that yen carry trade unwinds across assets have resulted in a substantial increase in volatility.
Wallden claims that the most recent decline is due to the way the markets were positioned. Because of participants’ long basis and option structures, the market was skewed for higher moves around Donald Trump’s appearance at Bitcoin 2024. As a result, we are witnessing a traditional wash out of these positions as well as an adjustment in collateral that supported some of these positions.
Wallden continued, “Days like today validate the necessity of being prepared for multiple tail-risk scenarios.” The cryptocurrency market has been structurally structured for a run upward.
A strong Japanese yen throws the market off balance
Numerous reasons have contributed to the current market turbulence, such as the strengthening Japanese yen, the most recent U.S. jobs statistics, concerns about the Federal Reserve’s ability to accomplish a soft landing, geopolitical tensions, and the disintegrating AI bubble.
On Monday, the Japanese yen reached a seven-month high versus the US dollar as traders unwound carry wagers at a rapid pace. This came after a slew of economic statistics released last week that raised worries about a possible recession in the United States and the possibility that the Federal Reserve might slash interest rates further to avert one.
These elements are the main causes of the recent decline in the bitcoin market, according to Bitfinex analysts.
The Bitfinex experts stated that the macroeconomic climate at that time would determine further price action. They also noted that the crypto sell-off is macro-driven and that they anticipate short-term support to be created around the $48,900 range. If there is no positive momentum, this region may be retested.
The decrease in the crypto market was caused, in part, by low liquidity during weekend trading, according to Ruslan Lienkha, Chief of Markets at YouHodler.
The decline was exacerbated by low liquidity on the weekends, when institutions are normally closed, and problems transferring fiat money. As a result, there were numerous margin calls on long holdings in the market. The price of bitcoin may see a corrective bounce after such a large decline. But, Lienkha continued, this gain will probably be constrained by the general pessimism in the wider markets.
Disclaimer : This article was created for informational purposes only and should not be taken as investment advice. An asset’s past performance does not predict its future returns. Before making an investment, please conduct your own research, as digital assets like cryptocurrencies are highly risky and volatile financial instruments.
