According to Cointelegraph, Bitcoin (BTC) volatility is at a 16-month low. The BTC options aggregate has increased to $2 billion, which is 13% below it’s all-time high, plus the Chicago Mercantile Exchange (CME) has also reached $300 million.
These option derivatives contracts offer buyers protection from both the upside and downside, and the fact that liquid options currently exist in the market is a positive trend.
They allow miners to stabilize their income, while market-makers are able to use them to hedge their trades. In short, “deeply liquid markets attract larger participants and increase their efficiency.” An implied volatility can be useful. When traders believe there is a larger risk of volatility in the price, this indicator shifts to a higher position, but the opposite happens when there is an expectation of less dramatic price movement.
For Bitcoin owners, a lower perceived volatility is good news, as it is often a signal of a significant price movement, and that market makers are willing to sell protection on lower premiums. Investors then need to shift their focus to futures markets and analyse whether or not there may be a dramatic price shift. It often leads to more investors joining the market, or that existing ones increase their positions.