In comparison to other digital assets, Bitcoin (BTC), the most valuable cryptocurrency in terms of market capitalization and trading volume, is meant to be comparatively stable, shielding a trader's portfolio from erratic fluctuations in the wider market.
But lately, ether (ETH) has not been as volatile as bitcoin. By around ten percentage points, ether's 30-day realized volatility was surpassed by Bitcoin's annualized 30-day historical or realized volatility, which reached about 60% late last week. That's the biggest margin in a year or more, based on statistics that Paris-based Kaiko monitors. Historical volatility is a measure of the level of price volatility that has been seen over a given time period.
Bitcoin – Ethereum volatility spread turned positive
Weeks after the U.S. Securities and Exchange Commission (SEC) approved around a dozen spot bitcoin exchange-traded funds (ETFs), enabling investors to gain exposure to the cryptocurrency without holding any, the bitcoin-ether volatility spread turned positive.
Since then, net inflows have been fueling upside volatility in bitcoin and the larger cryptocurrency market, and traders have been entirely focused on the action in the spot ETFs. Meanwhile, it appears that traders of ether have become less motivated due to the decreasing likelihood that the SEC would approve an ETH ETF by May.
Forthcoming reward halving
The forthcoming reward halving on the Bitcoin blockchain, a quadrennial event that will cut the rate at which BTC is emitted every block by 50%, may also be contributing to the cryptocurrency's comparatively higher volatility. The built-in algorithm will cut the per-block reward that miners receive from 6.25 BTC to 3.125 BTC on April 21. This would result in a halving of the miner earnings, which is currently estimated by ByteTree to be $26 billion annually.
Most people agree that halving is bullish because it slows down supply growth and, if demand stays stable or grows, creates an imbalance between supply and demand that drives up prices. After the previous halvings in November 2012, July 2016, and May 2020, Bitcoin put on incredible rallies and broke new records over the course of 12 to 18 months.
This time is different because, weeks before the halving, bitcoin exceeded the last bull market peak of over $69,000, which gives traders even more reason to be excited about the impending event.
Greg Magadini, director of derivatives at Amberdata, believes that a “sell-the-news” pullback following the event is possible due to the optimistic stance prior to the halving.
In the weekly newsletter, Magadini stated, “The market is poised for a VERY interesting'sell-the-news' halving cycle play,” given the current positioning's extreme extension. In the event of a genuine decline, we anticipate that excessive futures will be liquidated, volatility will RR-skew in favor of puts, and the basis will collapse.
According to Magadini, the halving event has also been priced in the bitcoin options market.
“The options market has an intriguing structure, if we look at it. There will be a high forward volatility kink for the 4/26 expiration and a steep [IV] Contango before that date. According to Magadini, the options market is also factoring in the halving event.