Bitcoin Volatility at its Lowest…Will it Break Out Upwards or Collapse Downwards This Time?

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Bitcoin (BTC) volatility has fallen to its lowest level in 8 months, leading to analyses that the market is on the verge of a major directional breakout. In particular, with an excessive build-up of bearish bets across the market, there's a possibility of a powerful short squeeze (buying pressure generated to liquidate or cover short positions) if Bitcoin breaks above $82,000.

According to investment specialized media FXStreet on May 26 (local time), Bitcoin's implied volatility has dropped to 36%, marking its lowest level in the past 8 months. This suggests that professional investors anticipate low chances of significant price fluctuations for the time being. However, the outlet analyzed that a decrease in volatility itself is not a bearish signal, and given the current structure of the derivatives market, the possibility of a rebound could actually increase.

Bitcoin's volatility surged during the sharp decline in January-February this year, but market risk perception has eased as it subsequently traded sideways in the $63,000-$71,000 range. The explanation is that volatility rapidly decreased as investors began to accept the $60,000 level as a strong support. Some market participants also cite the expansion of institutional investment and the growth of derivatives like Strategy's perpetual preferred shares as factors mitigating Bitcoin's price volatility.

Tyler Evans, CIO of UTXO Management, evaluated that the expansion of digital credit products is acting as a buffer for Bitcoin's volatility. In the past, miners and large investors had to directly sell Bitcoin to secure liquidity, but recently, the increased use of collateralized loans has reduced market selling pressure.

However, the outlet analyzed that the current low volatility is unlikely to be sustained for a long period. Historically, Bitcoin has repeatedly shown strong directional movements after long periods of sideways trading, and currently, a large volume of short position liquidations is concentrated in the $78,000-$83,000 range. In fact, according to Glassnode data, put options (sell options) in the Bitcoin options market are trading at a 14% premium compared to call options (buy options), strongly reflecting bearish market sentiment.

Considering the current options market sentiment, the outlet projected that if Bitcoin breaks above $82,000, leveraged short positions would be liquidated in a chain reaction, rapidly accelerating upward momentum. Conversely, the possibility of retesting $72,000 is largely already reflected in the market price, it analyzed.

*Disclaimer: This article is for investment reference only, and we are not responsible for any investment losses based on it. The content should be interpreted for informational purposes only.*