Unlocking the Truth Behind Bitcoin Halving: Dispelling Volatility Myths

    The Highly Anticipated Bitcoin Halving: Will It Cause a Volatility Explosion?

    As the fourth Bitcoin reward halving approaches, the cryptocurrency market is once again on the edge of their seats. However, according to Greg Magadini, director of derivatives at Amberdata, this highly anticipated event is unlikely to cause a significant increase in volatility.

    The impact of Bitcoin’s halving on miners and the price of BTC has been heavily discussed for years, leaving little room for a surprise outcome. On April 20th, the blockchain’s code will reduce the per-block issuance of BTC from 6.25 BTC to 3.125 BTC.

    In the lead up to this event, implied volatility (IV) on Bitcoin has risen, indicating an anticipated increase in price turbulence during this quadrennial event. Despite this, Magadini cautions against placing bullish bets on volatility, stating that it is not worth paying a premium for a highly predictable outcome.

    Typically, traders will place bullish bets on volatility ahead of events with uncertain outcomes, buying both call and put options or volatility futures to profit from potential price swings. However, the impact of Bitcoin’s halving on the cryptocurrency and miners has been well documented, with historical data showing significant rallies in the 12-18 months following the halving.

    Although major crypto events such as Ethereum’s Dencun upgrade and Shanghai upgrade have had little market impact, disappointing traders expecting a surge in price volatility, Magadini notes that Bitcoin’s 30-day implied volatility has increased from 68% to 75% in just a week, with the volatility risk premium (VRP) surpassing 10% for the first time since early March.

    VRP, which measures the gap between implied and realized volatilities, tends to increase before and after significant market events and drop during periods of calm. Magadini suggests that options implied volatility is currently overpricing the halving event, causing the VRP to rise.

    At the time of writing, Bitcoin is trading at $71,800, with a 3.5% gain on the day. Since hitting lows of $64,500 on April 2nd, the cryptocurrency has risen over 11%. The CoinDesk 20 Index, a broad measure of the crypto market, has also added 3.8% in the past 24 hours.

    In conclusion, the highly anticipated Bitcoin halving is unlikely to cause a volatility explosion, according to experts. While the market is eagerly awaiting the upcoming event, historical data and current trends suggest a more moderate price movement in the days surrounding the halving.

    Edited by Sheldon Reback.

    Latest articles

    Related articles

    Leave a reply

    Please enter your comment!
    Please enter your name here