A week ago, Arthur Hayes, former CEO of cryptocurrency exchange BitMEX, said that Bitcoin (BTC) has bottomed out, but the expected rise is likely to slow.
A measure called the volatility risk premium (VRP) is now suggesting as much, suggesting a relatively less volatile market environment going forward, which could be seen as a positive development for long-term investors. There is sex.
VRP reflects the tendency for the implied volatility (a measure of the expectation of price movement) caused by an option on the underlying asset to exceed the realized volatility over time. The spread represents the premium demanded by the seller for future uncertainty and the additional risk associated with price fluctuations, his option.
According to data tracked by Bitfinex analysts, one-month VRP has fallen from 15% to 2.5% since the Bitcoin blockchain implemented a halving of mining rewards on April 20th. The VRP calculation is based on the gap between Volmex's Bitcoin's 30-day Implied Volatility Index (BVIV) and his 1-month Realized Volatility (VBRV).
“The significant contraction in VRP signals a recalibration of market expectations towards a more stable and predictable environment post-halving,” Bitfinex analysts said in a note shared with CoinDesk. “The market consensus appears to be that future volatility post-halving may be less than previously expected.”
In other words, uncertainty has receded and market participants can now anticipate more predictable market conditions.
On April 20th, the Bitcoin blockchain reduced its supply emissions per block from 6.125 BTC to 3.125 BTC in a quadrennial event that halved the pace of supply expansion.
The consensus is that Bitcoin will repeat its record of solid gains in the months following the halving, driven by global debt concerns and massive fiscal spending by the United States.
At the time of writing, the top cryptocurrency by market value is hovering at $62,400, little changed since the halving. However, the price has recently recovered from lows around $56,500.
Ethereum (ETH)’s one-month VRP has fallen from 18% to 8.5%, but remains high compared to Bitcoin, a sign that traders see Ethereum’s future as relatively uncertain.
“A possible reason for the small decline in Ethereum VRP is that the SEC’s ETF decision on May 23, 2024 is acting as further uncertainty on the ETH price. This confirms that we are capturing a premium related to uncertainty,” Bitfinex analysts said. The U.S. Securities and Exchange Commission is facing multiple filings against the SpotEther exchange-traded fund.
