The recent trading session on Thursday was compelling, with Bitcoin falling by more than 7%. This sharp drop virtually wiped out the majority of the gains made since BlackRock’s June filing for a Bitcoin exchange-traded fund.
As is frequently the case in the crypto world, determining the actual cause of such a drop is difficult. Some suspect that market jitters following the bankruptcy filing of Chinese real estate behemoth Evergrande may have had a role. This bankruptcy case was supported by larger concerns about China’s property crisis and economic recession, which cast a shadow over U.S. equities markets at the same time. Furthermore, it was revealed that Elon Musk’s SpaceX had undervalued its Bitcoin holdings by $373 million in the previous year.
Expecting a Seismic Shift
For some weeks, traders across the board have been anticipating a huge shift. Bitcoin had been in a condition of low volatility and trade volumes, resembling levels not seen in several years. This setting is similar to the market condition of the summer of 2018 when Bitcoin oscillated about $6,500 before falling around the $3,000 mark.
Though this last drop was not as severe, it did follow certain historical trends, as crypto company QCP pointed out. The market’s drop on Thursday brought back memories of Elon Musk’s tops and bottoms in 2021 and 2022, raising expectations that the market may follow identical paths again. The tragedy also prompted a move in the futures market toward “bear extension mode.”
Volatility’s Resurgence
According to Genesis, implied volatility has returned in a big way, hitting levels reminiscent of the FTX catastrophe. The VOL of VOL, a measure of implied volatility movement, also increased. This was emphasized in a customer message, which cited examples of big price fluctuations and changes in options trading activity.
The current context, which is defined by increased market uncertainty, has resulted in changes in sentiment and price. Gordon Grant of Genesis had projected a volatile breakout, predicting either an upward or downward trend. Surprisingly, this significant decline happened in a more robust crypto environment, indicating that the digital asset class has matured.
The possible impact of the Bitcoin exchange-traded fund (ETF) on the market has sparked speculation. According to some analysts, the ETF might boost the market above the $30,000 threshold. A key court judgment in Grayscale’s case against the SEC’s denial of its GBTC to spot ETF conversion application is expected, with an impending verdict adding to market uncertainty.
VOL of VOL: An Indicator of Uncertainty
The volatility of volatility (VOL of VOL) has increased, indicating a quick shift in market sentiment in favor of protective actions against downside risks. This increase highlights the current lack of agreement on the proper pricing of market insurance through options.
Finally, the prevalent feeling is one of uncertainty, which contributes to an atmosphere of increased volatility. The market is expected to remain unpredictable in the coming days. This summary is not intended to be financial advice, but rather a viewpoint on the changing crypto world. Cheers to the adventure ahead.
