In a recent development, the correlation between Bitcoin’s price and its implied volatility has taken a surprising turn.

According to data from Velo, the 60-day trailing correlation between BTC’s price and its implied volatility turned negative in the second week of September. By the morning of September 12th, this correlation had plummeted to -0.29.

This shift in correlation is noteworthy, as it indicates a potential change in market dynamics. Historically, Bitcoin’s price and its volatility have often moved in tandem. A rise in price was frequently accompanied by an increase in volatility, and vice versa. However, the recent data suggests that this may no longer be the case.

Jeff Anderson, a senior trader at STS Digital, weighed in on the matter. He pointed out that the news of liquidations on FTX, coupled with bearish expectations, has led to a softening in spot prices. Concurrently, the implied volatility in these weaker price zones has surged. “The market is reacting to external pressures, and the volatility is a clear reflection of that,” Anderson commented.

Another perspective came from Griffin Ardern, a volatility trader at asset management firm Blofin. Ardern highlighted concerns over tightening monetary policies in global markets as a significant factor behind the changing volatility trend.

He mentioned that the upcoming U.S. CPI data for August might indicate a rebound in inflation. If this proves true, it could signal that the Federal Reserve might implement additional liquidity tightening measures to curb further inflation.

The implications of this shift are manifold. For traders and investors, it means recalibrating their strategies to account for the decoupling of price and volatility. It also suggests that the market is becoming more sensitive to external news and events, making it even more crucial for stakeholders to stay informed and agile.

Furthermore, if the U.S. CPI data does indicate a resurgence in inflation, it could have broader implications for the global financial landscape. Central banks worldwide might be prompted to reconsider their monetary policies, potentially leading to a ripple effect across various asset classes.

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Filed under: Bitcoin - @ September 13, 2023 4:16 pm