Research Summary
The report discusses the high volatility of Bitcoin compared to the S&P 500’s VIX index. It suggests that Bitcoin’s volatility is overpriced by 30% relative to the VIX. The report also predicts a decline in Bitcoin’s volatility towards the end of the year, and suggests buying call spreads instead of outright calls due to the expected volatility decrease.
Key Takeaways
Bitcoin’s High Volatility Compared to VIX
- Bitcoin’s Overpriced Volatility: The report indicates that Bitcoin’s volatility is 30% higher than the VIX index’s volatility. The realized Bitcoin volatility to VIX ratio currently stands at 3.4x, while the average for 2023 has been 2.4x. This suggests that Bitcoin’s volatility is overpriced and likely to decline.
- Trading Opportunities: The high volatility of Bitcoin provides traders with attractive levels to enter trades. The report suggests that selling Bitcoin options could be a viable strategy as the cryptocurrency’s volatility appears overpriced based on the general perception of market risk.
Bitcoin’s Price Movement and Future Predictions
- Bitcoin’s Price Resistance: The report notes that Bitcoin briefly broke above the $38,000 resistance level but failed to maintain momentum, falling back into the $35,000 to $38,000 range. However, a move above $40,000 is still possible.
- December Rally: The report predicts a potential rally in December, as Bitcoin prices tend to increase by approximately 12% during the last month of the year. Factors such as the Federal Reserve’s stance on interest rates and inflation data could influence this rally.
Market Broadening and Bitcoin’s Dominance
- Broadening Bull Market: The report observes that the bull market is broadening, with Bitcoin’s dominance indicator declining and network fees and altcoin blockchains increasing to their highest levels since summer.
- Buying Strategy: The report suggests buying call spreads instead of outright calls due to the expected decline in Bitcoin’s volatility. As the Bitcoin volatility/VIX vol ratio remains near the top of its two-year range, selling Bitcoin volatility can still be done at attractive levels.
Actionable Insights
- Consider Volatility in Trading Strategies: Traders should take into account the high volatility of Bitcoin when formulating their trading strategies. Selling Bitcoin options could be a viable strategy given the current overpricing of Bitcoin’s volatility.
- Monitor Market Trends: Investors should keep an eye on market trends, such as the broadening of the bull market and the decline in Bitcoin’s dominance. These trends could have significant implications for investment strategies.
- Adapt to Expected Volatility Decline: With the expected decline in Bitcoin’s volatility towards the end of the year, investors might want to consider buying call spreads instead of outright calls.
