Bitcoin volatility hits 20-month high, traders hedge against further slump

Bitcoin’s volatility index reached its highest level in 20 months, but traders are unsure if there will be more pain ahead.

A key Bitcoin volatility indicator reached its highest level in 20 months after Bitcoin fell below $50,000, and futures traders now expect Bitcoin’s price might decline further.

Meanwhile, pseudonymous crypto trader Yoddha has declared it could be “the best buying opportunity of 2024.”

The Bitcoin Volmex Implied Volatility Index tapped 97.14 on Aug. 5, the same day Bitcoin (BTC) briefly dipped to $49,813, according to CoinMarketCap data.

It’s the highest level since November 2022, when cryptocurrency exchange FTX collapsed.

24-hour put-to-call volume ratio signals bearish sentiment

Bitcoin has recovered since to trade at $56,676 at the time of publication, yet futures traders are still speculating there may be further downside ahead.

“Traders are aggressively buying puts and put spreads on both BTC and ETH to protect their positions from further downside,” Tyr Capital chief investment officer Ed Hindi told Cointelegraph.

The put-to-call volume ratio measures the demand for put (sell) versus call (buy) options. Currently, it stands at 46.94% calls and 53.06% puts over the past 24 hours, resulting in a put-to-call ratio of 1.13, according to CoinGlass data.

“Put skew is extremely well bid. This may be a sign that the market is overextended,” Hindi added.

Hindi believes there may be further downside but doubts it will “breach” $45,000.

Related: Bitcoin bull-bear market cycle signals potential bear market — Analyst

“Whether we trade down there will depend on how far away we are from the end of the JPY carry trade unwind. We believe we are getting close to the end,” he claimed.

But another metric, Bitcoin options volume has dropped by 39.73% over 24 hours on Aug. 6, signaling that future traders are unsure of the direction of Bitcoin’s price.

Some traders are bullish

However, not all traders are anticipating an extended downturn. Others are anticipating sideways price action and even a near-term recovery.

“Aggressive sell off would assume price to stall for a bit and give us a range,” pseudonymous crypto trader RektProof wrote in an Aug. 6 X post.

“Expect a HUGE reversal soon,” Bitgrow Lab founder Vivek Sen added.