Kaiko data shows the disparity between bitcoin and ether's annualized 30-day historical volatility gauges reached a year-high. Spot ETF inflows and Bitcoin blockchain halving may have increased BTC volatility.
Bitcoin {{BTC}}, the top cryptocurrency by market value and trading volume, is known for its stability, shielding traders from market fluctuations. However, bitcoin has been more volatile than ether {{ETH}} recently.
Bitcoin's annualized 30-day historical or realized volatility reached around 60% late last week, topping ether's by roughly 10%. According to Paris-based Kaiko, that's the largest spread in a year. Historical volatility shows price fluctuations over time.
The bitcoin-ether volatility differential rose weeks after the SEC approved almost a dozen spot bitcoin exchange-traded funds (ETFs), allowing traders to trade the cryptocurrency without holding it. Since then, traders have focused on spot ETF activity, with net inflows causing bitcoin and the crypto market to rise. Ether traders appear demotivated as the SEC's likelihood of approving an ETH ETF by May decreases.
Bitcoin's forthcoming reward halving, a quadrennial event that cuts per-block BTC output by 50%, may also increase volatility. On April 21, the embedded code will cut miners' per-block payout to 3.125 BTC from 6.25 BTC, half their $26 billion yearly revenue, according to ByteTree.
Halving the speed of supply expansion creates a demand-supply mismatch that favors price increases, provided demand remains unchanged or strengthens. After the November 2012, July 2016, and May 2020 halvings, Bitcoin rallied to record highs over 12-18 months.
Traders are especially excited about the halving this time because bitcoin has eclipsed the previous bull market peak of $69,000 weeks before. Greg Magadini, director of derivatives at Amberdata, predicts a "sell-the-news" dip following the half due to bullish posture.
In the weekly newsletter, Magadini noted, “The current positioning being so extended is setting the market up for a VERY interesting «sell-the-news» halving cycle play. A meaningful drop could result in liquidation of excess ∆1 [futures] OI, RR-skew to favor puts, and a sinking basis.
The bitcoin options market has also priced the halving event, Magadini said. “The options market has an interesting structure. A steep [IV] Contango before 4/26 and a high 4/26 future volatility kink. Magadini noted that the options market prices the halving event.
IV is the market's prediction of future volatility. IVs plotted for varied expiries usually form a contango, an upward-sloping curve. BTC volatility is expected to rise during the halving due to a severe contango before April 26. Future volatility suggests so.
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