Bitcoin Price-Volatility Correlation Turns Negative Again as Crypto Traders Eye FTX Liquidations
- The correlation between bitcoin and its implied volatility has turned negative again, indicating investor concerns about moves to the downside.
- Investors seem worried that impending FTX liquidations and continued monetary tightening by the Federal Reserve will drive crypto prices lower, according to one analyst.
Bitcoin’s (BTC) price and the cryptocurrency’s forward-looking 30-day implied volatility gauge are again moving in the opposite direction. The return to a negative correlation represents concerns about looming FTX liquidations, according to observers.
The 60-day trailing correlation between bitcoin’s price and implied volatility flipped negative a week ago and fell to -0.29 early Tuesday, according to Velo Data.
Bitcoin’s price has declined by almost 10% in four weeks. The price hit a three-month low below $25,000 on Monday as traders took account of the possibility that defunct crypto exchange FTX will secure bankruptcy court approval to start selling its $3.4 billion worth of crypto holdings. Leading crypto options exchange Deribit’s BTC DVOL index, which measures the 30-day implied volatility, has increased to 42 from 32 in the past four weeks.
A decrease in price alongside an increase in implied volatility indicates bias for put options, derivative contracts offering protection against price slides. Implied volatility refers to investors’ expectations for price turbulence over a specific period and is influenced by demand for both call and put options. That means the negative correlation stems from expectations of and positioning for a potential FTX-induced aversion to risk.
“The market has spent the last few months preparing for a potential ETF approval and has thus been very concerned about asymmetric moves to the topside.” Jeff Anderson, a senior trader at STS Digital, told CoinDesk. “That sentiment has shifted recently with the FTX liquidation news and fears that the bottom could fall out of the spot price. As such, the implied volatility has gone bid with spot prices moving in an area of perceived weakness.”
