The tranquility currently observed in the bitcoin (BTC) market may not last long, possibly foreshadowing a turbulence that could lead to notable price fluctuations, as analyzed by the decentralized on-chain options platform.
Since March 12, BTC has hovered between $80K and $85K, a typical consolidation pattern following a significant directional shift. The price previously fell from $100K to below $80K, influenced by factors such as tariffs imposed by President Trump and disappointment over the lack of fresh acquisitions for the U.S. strategic BTC reserve.
The recent consolidation has seen key volatility indicators drop, nearing monthly lows. It’s important to note that volatility tends to be mean-reverting, which suggests that the current period of low volatility may soon give way to price fluctuations.
“The weekly at-the-money (ATM) volatility of BTC has decreased to 49%, slipping below 50% and nearing monthly lows of 45%. Realized volatility has similarly dropped from 91% at the beginning of the month to 54% now,” remarked the founder of the options platform in a recent memo.
It’s essential to understand that volatility does not provide any clues about price direction. An expected rise in volatility does not imply a specific trajectory for bitcoin’s price.
“Volatility tends to revert to the mean, so we can anticipate an increase soon, likely returning to levels seen in February (60-70%),” the founder noted.
Whether prices go up or down, volatility can escalate, indicating that substantial price movements may happen in either direction.
Several elements could instigate this volatility, such as “a ceasefire (or lack of one) in the Ukraine conflict or significant changes in cryptocurrency regulatory policies under the Trump administration.”
The platform in question is recognized as a leading artificial intelligence-based options protocol, with nearly $100 million in total value locked and a cumulative trading volume of $15 billion reported to date.
The impending Federal Reserve interest rate decision on Wednesday could also impact markets.
The central bank is expected to maintain current rates, while traders anticipate two to three rate reductions later this year. However, a dovish surprise might ignite bullish momentum for a substantial price jump.
That said, potential Fed rate cuts could be constrained, as noted by BlackRock.
“Markets are pricing in about two to three 25 basis point cuts this year, compared to previous expectations of just one. This reflects fears of a U.S. recession, despite economic conditions not indicating a downturn. Even with prolonged uncertainty affecting growth, persistent inflation may limit the Fed’s ability to make cuts,” the firm stated in a weekly commentary.
The anticipated volatility surge could skew negative if equity markets keep declining, further accelerating the drop in cryptocurrency prices.