Just as the tension-filled bow strings suddenly pull out energy with powerful snaps, Bitcoin BTC$112,640.82 It appears that they will be building energy into wild price fluctuations in October, reflecting the 2023 pattern.
The Crypto market has been boring lately, with Bitcoin trading between $110,000 and $120,000. It curtails volatility expectations. For example, Volmex Finance's BVIV index, which measures 30 days of implicit volatility (IV), fell to 38% per year, turning the short spike to 41% in late August. The index is on track to test its first two-year low of 36% four weeks ago.
Implicit volatility represents the market's expectations for future volatility. This is derived from the pricing of options and reflects one standard deviation range of expected price transfers for the underlying asset over a year. Tracking AT-The-Money (ATM) IV over time gives you a normalized view of market expectations. This tends to move along with realized volatility and broader market sentiment.
The latest trends in IV reflect a setup that has dropped sharply from 50 to 35 since the summer of 2023. During that period, IV was compressed until October, bringing Bitcoin to around $25,000 before its rallies at around $46,000 just before the launch of the Spot Bitcoin ETF in early 2024.
This pattern was consistent with the nature of the average revert of IV. In other words, there is a tendency to increase volatility following large movements in either direction, followed by long-term peaks of lulls and peaks.
The latest volatility compression suggests that the market lacks future price turbulence. If history is a guide, October could be an inflection point again. Here, Bitcoin experiences a significant price movement, perhaps bullish. This is because historically, the fourth quarter was Bitcoin's strongest quarter, bringing an average increase of around 85%.
