Bitcoin's Volatility Ties to US Stocks Draw Attention, Drive Market Maturity
Bitcoin's volatility has been a hot topic recently, with analysts and traders taking note of its increasing correlation with US stock market volatility. This shift has led to adjustments in market calculations and a more mature market structure around Bitcoin derivatives.
Over the past year, Bitcoin's volatility index has dropped from 67% to 42%, inversely mirroring its price appreciation of 26%. This decline can be attributed to the growing influence of institutional investors, particularly those employing systematic volatility strategies such as selling covered call options on Bitcoin. This increase in covered calls and options trading has brought more liquidity and reduced extreme price swings, contributing to a more stable market structure.
Markus Thielen of 10x Research has highlighted Wall Street's growing dominance in option markets, which is influencing risk dynamics within the crypto sphere. As a result, Bitcoin's volatility correlation with US stock market volatility has weakened, reflecting Bitcoin's evolving role as a more independent asset that is less sensitive to overall stock market fluctuations. However, it's important to note that Bitcoin's 90-day correlation with the S&P 500 Volatility Index (VIX) reached an all-time high of 0.88, indicating that while Bitcoin is becoming more independent, it's still not entirely decoupled from the broader market.
In summary, the increased correlation between Bitcoin and US stock market volatility has drawn attention from analysts and traders, leading to adjustments in market calculations. Institutional activity is reshaping cryptocurrency market dynamics, with Bitcoin's volatility aligning more closely with US stock market volatility. Despite this, Bitcoin is evolving into a more independent asset, as evidenced by its weakening correlation with US stock market volatility and the growth of a more mature market structure around Bitcoin derivatives.
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