2025-7-12 09:32 |
Bitcoin's (BTC) bull runs have evolved. Gone are the days of adrenaline-pumping rallies marked by wild price swings that kept traders awake night after night in fear of sudden whipsaws and liquidations of leveraged bets. Now, prices climb steadily, much like the boring bull runs in stock markets.
For example, from November last year, bitcoin's price surged from around $70,000 to a record-high over $118,000 as of writing — a 68% rally. This ascent has been accompanied by a consistent decline in both realized and expected volatility, indicating a break from the usual positive correlation seen between spot prices and volatility in the past.
The shift aligns bitcoin with Wall Street, where the VIX index, often called the fear gauge, measuring the 30-day IV, tends to decline during bull markets.
Cole Kennelly, founder and CEO of Volmex Labs, explained to CoinDesk that bitcoin's record highs amid declining implied volatility suggest shift away from the usual positive correlation and a move toward traditional financial market behavior as the crypto landscape matures.
"As observed with the VIX index, spot prices and the BVIV Index may be becoming more negatively correlated, much like the relationship seen with the VIX," he noted.
Positive correlation ends with institutional adoptionThe era of positive correlation between spot prices and volatility appears to have ended, primarily driven by institutional adoption. Key volatility indicators have started to decouple from the rising bitcoin price, marking a sign of market maturity.
In late 2024, Volmex Finance's BVIV – measuring the annualized 30-day implied volatility from bitcoin options – stayed between 60% and 70% as bitcoin climbed from $70,000 to $100,000. But since January, the index has been trending downward, reaching around 40% at the time of writing, its lowest level since October 2023.
This contrasts sharply with earlier surges, like the spike from 43% to 85% during bitcoin's rally from about $43,000 to $73,000 in early 2024.
Crypto options exchange Deribit's DVOL, which also represents the 30-day implied volatility, saw a similar positive correlation with BTC's since early 2023. However, not anymore, and the change is due to the influx of sophisticated players in the market, according to Pulkit Goyal, Head of Trading at Orbit Markets, an institutional liquidity provider for crypto options.
"The breakdown in the spot-vol correlation makes sense when you look at the nature of this rally. Unlike past parabolic surges, this move has been a steady grind higher, orderly and largely driven by institutional flows rather than retail. So while spot is higher, realized volatility hasn’t picked up in the same way, which keeps implied vol suppressed," Goyal told CoinDesk.
Data from TradingView confirms this, showing bitcoin's 30-day realized volatility dropping from a high of 85% in early 2024 to around 28% over the past three months—significantly lower and remaining below the 70% mark. Realized volatility reflects actual past price movements, which have been notably subdued lately.
Explaining the subdued volatilityGreg Magadini, Director of Derivatives at Amberdata, attributes it to institutional strategies like writing covered calls to generate additional yield on bitcoin holdings or bitcoin-linked ETFs such as BlackRock's IBIT.
"There are two themes for lower volatility overall: 1) BTC as a maturing asset (and growing market cap) now has more liquidity and requires more money to move prices around, 2) Institutional investors have now been able to trade IBIT options for the past 6 months...," Magadini told CoinDesk.
Options – derivative contracts used for hedging – play a key role here. A call option provides asymmetric bullish exposure, while a put option protects against downside risks in the underlying asset. The demand for options influences implied volatility.
When institutions sell high-strike out-of-the-money calls against their spot holdings, it exerts downward pressure on implied volatility. This yield-generation approach has become increasingly popular in crypto markets over recent years.
"This shift in spot-volatility correlation is driven by structural volatility sellers at the long end of the curve, specifically bitcoin treasury vehicles, which have proliferated in recent months," Kennelly said.
Market makers and dealers also contribute to lower volatility. These entities typically aim to maintain delta-neutral positions by balancing bets across futures and spot markets. According to Goyal, the selling of covered calls by miners and institutions to generate additional yield leaves market makers with a long vega exposure that stands to benefit from a rise in volatility. To hedge back to a neutral exposure, market makers sell volatility, depressing implied volatility even as prices climb.
"Long-term holders like miners often sell covered calls or similar yield-enhancing structured products to earn yields. Dealers accumulate these, ending up with long vega risk. As spot prices rise, dealers derive even longer vega risk; they hedge it by selling volatility, effectively putting downward pressure on implied vols. This dynamic supply of vol from dealers can cap or even invert the typical spot-vol dynamic, leading to lower implied volatility even as spot rallies," Goyal explained.
Chugging along until something breaksLooking ahead, this pattern of rising prices accompanied by low volatility may persist, supported by macroeconomic factors such as a weakening U.S. dollar and expectations of rate cuts. However, any unexpected event—like a sudden market panic—could cause bitcoin’s volatility to spike sharply, much like what happens in equity markets.
Philip Gillespie, managing partner at AWR Capital, summed it up: "The macro backdrop is supportive of risk, with the dollar weakening and asset prices rising. Minor dips are minimized as buyers keep lining up, leading to less volatility as bitcoin nears all-time highs. But if something triggers a sudden move, volatility could spike abruptly."
Until then, the market appears to be chugging along in a slow, steady ascent, essentially a 'slow-moving train' driven by macro trends rather than frantic speculation, Gillespie added.
Disclaimer: Parts of this article were generated with the assistance from AI tools and reviewed by our editorial team to ensure accuracy and adherence to our standards. For more information, see CoinDesk's full AI Policy.
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