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The key Bitcoin indicator indicates a period of calm in the cryptocurrency market
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BTC’s volatility risk premium (VRP) has plummeted since the halving, a sign that traders expect relatively stable market conditions going forward.
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ETH’s VRP remains high relative to bitcoin.
A week ago, Arthur Hayes, former CEO of cryptocurrency exchange BitMEX, She said bitcoin {{BTC}} has bottomed, but the expected upward movement will likely be slow.
Now, an indicator called the volatility risk premium (VRP) suggests the same thing, signaling a relatively low-volatility market environment ahead, which could be seen as a positive development by long-term investors.
VRP reflects the tendency for an underlying asset’s option-induced implied volatility, a measure of expectations of price turbulence, to exceed realized volatility over time. The spread represents premium option sellers’ demand for additional risks associated with future uncertainty and price volatility.
According to data tracked by analysts at Bitfinex, the one-month VRP has plummeted from 15% to 2.5% since the Bitcoin blockchain implemented the mining reward halving on April 20. The VRP calculation is based on the gap between Volmex’s 30-day implied volatility index (BVIV) and one-month realized volatility (VBRV).
“The significant tightening of the VRP indicates a realignment 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 may be lower than previously expected post-halving.”
In other words, uncertainty has decreased and market participants expect more predictable market conditions.
The monthly VRP of BTC and ETH fell sharply, indicating a more predictable and stable post-halving market. (Bitfinex, TradingView)
The Bitcoin blockchain was born on April 20th cutting supply emissions per block to 3,125 BTC from 6,125 BTC in a four-year event that halved the pace of supply expansion.
The general consensus is that global debt concerns and massive fiscal spending by the United States will help Bitcoin repeat its record of solid gains in the months following the halving.
At the time of writing, the leading cryptocurrency by market value is changing hands at $62,400, essentially unchanged since the halving. Prices, however, have recently recovered from lows near $56,500.
ETH’s outlook is relatively uncertain
While Ether’s one-month VRP fell to 8.5% from 18%, it remains elevated relative to Bitcoin, a sign that traders view Ether’s future as relatively uncertain.
“One possible reason why Ethereum VRP drops less is that the SEC ETF decision of May 23, 2024 acts as an additional uncertainty for the price of ETH. This also confirms that VRP captures the premium relative to the future uncertainty,” Bitfinex analysts said. The U.S. Securities and Exchange Commission is facing several inquiries into spot ether exchange-traded funds.
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