Author: Omkar Godbole, CoinDesk; Translated by: Tao Zhu, Golden Finance
Bitcoin’s volatility risk premium (VRP) has fallen significantly since the halving, suggesting that traders expect relatively stable market conditions going forward.
Compared to Bitcoin, ETH’s VRP is still high.
A week ago, Arthur Hayes, former CEO of BitMEX cryptocurrency exchange, said that Bitcoin (BTC) has bottomed out, but the expected rise may be slow.
Now, a measure called the volatility risk premium (VRP) is saying the same thing, suggesting a relatively low volatility market environment ahead, which can be viewed as a positive development by long-term investors.
The VRP reflects the tendency of the underlying asset's option-induced implied volatility (a measure of expectations of price fluctuations) to exceed realized volatility over time. The spread represents the demand of premium option sellers for the additional risk associated with future uncertainty and price volatility.
According to data tracked by Bitfinex analysts, one-month VRP has plunged from 15% to 2.5% since the Bitcoin mining reward halving on April 20. The VRP calculation is based on the gap between Volmex’s Bitcoin 30-day Implied Volatility Index (BVIV) and 1-month Realized Volatility (VBRV).
“The sharp narrowing of VRP suggests that market expectations are recalibrating to a more stable and predictable environment post-halving,” Bitfinex analysts said in a note shared with CoinDesk. “The market consensus seems to be that future volatility after the halving is likely to be lower than previously expected.”
In other words, uncertainty has diminished and market participants expect market conditions to be more predictable.
One-month VRP for BTC and ETH has dropped significantly, indicating a more predictable and stable market after the halving. (Bitfinex, TradingView) (Bitfinex, TradingView)
On April 20, the Bitcoin blockchain cut its supply per block from 6.125 BTC to 3.125 BTC, a once-in-four-years event that cuts the rate of supply expansion in half.
The consensus is that global debt concerns and massive fiscal spending in the U.S. will help Bitcoin repeat its record of strong gains in the months following the halving.
ETH’s outlook is relatively uncertain
While Ethereum’s (ETH) one-month VRP has dropped from 18% to 8.5%, it is still high compared to Bitcoin, suggesting that traders view Ethereum’s future as relatively uncertain.
Bitfinex analysts said: "One possible reason for the smaller decline in Ethereum VRP is that the SEC's ETF decision on May 23, 2024, brings additional uncertainty to ETH prices. This also confirms that VRP captures the premium associated with future uncertainty." The U.S. Securities and Exchange Commission is considering multiple applications for spot Ethereum exchange-traded funds.
