Crypto Markets Displaying Subdued Volatility Expectations
The cryptocurrency market has seen a recent dip in prices, with Bitcoin falling to the mid-$21,000 range and Ethereum dropping below $1,500. However, despite this pullback, options markets indicate that traders still have low expectations for volatility. Deribit’s Bitcoin and Ethereum Volatility Indices are both close to record lows, according to data from The Block.
Causes for Market Dip
The dip in the crypto market can be attributed to a few factors, including concerns about the Fed’s more restrictive interest rate outlook and the potential for a regulatory crackdown on large US-based crypto firms.
Deribit Indices Showing Low Volatility
As of Monday, Deribit’s Bitcoin Volatility Index was at 48, just above the record lows it reached last month at 42. On the other hand, the Ethereum Volatility Index was last recorded at 62, slightly above its early January record lows of 58.
Short-term Volatility Predictions Remain Calm
Despite upcoming US Consumer Price Index and Retail Sales data that could potentially impact the Fed’s tightening outlook and the risk of a potential US recession, Bitcoin’s 7-day Implied Volatility, according to ATM options markets, fell to its lowest in a month at 39.68%.
Investors Not Bracing for Price Volatility
The fact that Deribit’s Bitcoin and Ethereum Volatility Indices, as well as Bitcoin’s 7-day ATM Implied Volatility, are all at low levels suggests that investors are not preparing for significant price movements in the near future.
Federal Reserve Tightening Continues to be a Headwind for Crypto
The US Federal Reserve’s monetary tightening has been a challenge for the crypto market in 2022 and continues to be so in the first quarter of 2023. The Fed raised interest rates from close to zero to over 4% in 2022 and is expected to continue to lift them above 5% in the first half of 2023, according to recent commentary from the bank’s policymakers.