Bitcoin bull run "changes face": prices soar, but volatility has "flattened out".

According to CoinDesk, there was a time when Bitcoin's bull run was always accompanied by adrenaline-pumping fluctuations, keeping margin traders awake at night, fearing sudden price turns leading to Get Liquidated. However, times have changed. The current rise in Bitcoin prices is becoming increasingly "uneventful," resembling the "boring" bull runs found in traditional stock markets.

Phenomenon: Record-breaking rise accompanied by Fluctuation "plunge"

For example, since last November, the price of Bitcoin has soared from around $70,000 to a record high of over $118,000 at the time of writing, an increase of 68%. However, at the same time, both Realized Volatility and Implied Volatility have shown a consistent downward trend. This indicates that the previously common positive correlation between Bitcoin prices and volatility has been broken.

Looking to Wall Street: Negative Correlation Begins to Emerge

This shift aligns Bitcoin's behavior with that of Wall Street. In traditional financial markets, the "fear index" VIX, which measures the 30-day expected volatility of the S&P 500 index, typically declines during a bull run.

Cole Kennelly, founder and CEO of Volmex Labs, explained to CoinDesk that while Bitcoin is at a record high, the implied volatility is decreasing, indicating a deviation from the previously positive correlation and a shift towards behaviors seen in traditional financial markets, marking the maturation of the crypto space.

"As observed in the VIX index, the spot price and the BVIV index (Bitcoin Volatility Index) may be becoming more negatively correlated, similar to the relationship exhibited by the VIX," he pointed out.

Positive Correlation Conclusion: Institutional Entry is the Core Driving Force

The era of a positive correlation between Bitcoin spot prices and volatility seems to have come to an end, the widespread adoption by institutional investors is the main driving force. Key volatility indicators have begun to decouple from the continuously rising Bitcoin prices, which is a sign of the market maturing.

Data Speaks: BVIV and DVOL Both "Cool Down"

By the end of 2024, when Bitcoin rises from $70,000 to $100,000, Volmex Finance's BVIV index (which measures the 30-day annualized implied volatility of Bitcoin options) remains between 60% and 70%. However, since January of this year, the index has been on a downward trend, and at the time of writing, it has dropped to around 40%, the lowest level since October 2023.

This sharply contrasts with the early explosive rise. For example, at the beginning of 2024, when Bitcoin rose from about $43,000 to $73,000, BVIV surged from 43% to 85%.

The DVOL index of the cryptocurrency options exchange Deribit (which also represents the 30-day implied volatility) has shown a positive correlation with Bitcoin prices since the beginning of 2023. However, this relationship no longer exists. Pulkit Goyal, the trading director of institutional-grade cryptocurrency options liquidity provider Orbit Markets, believes this change is due to the influx of mature participants in the market.

Pulkit Goyal from Orbit Markets (temporary Chinese name: 杨) told CoinDesk: "When you examine the nature of this rise, the break in the correlation between spot and volatility makes sense. Unlike the parabolic surges of the past, this rise is steady, orderly, and primarily driven by institutional capital flows rather than retail investors. Therefore, even though spot prices are rising, actual volatility has not increased in the same way, which has suppressed implied volatility."

TradingView data confirms this: Bitcoin's 30-day actual volatility has decreased from a high of 85% at the beginning of 2024 to around 28% over the past three months—a significant reduction and consistently below the 70% threshold. Actual volatility reflects past actual price movements, and recently these movements have clearly trended towards stabilization.

Decrypting Low Volatility: Institutional Strategies and the Options Market Are Key

Amberdata's derivatives director Greg Magadini attributed the suppressed volatility to institutional strategies, such as selling covered calls to generate additional income for their Bitcoin holdings or Bitcoin-linked ETFs (like BlackRock's IBIT).

Magadini told CoinDesk: "There are two themes regarding the overall decrease in volatility: 1) Bitcoin, as a mature asset (and with a continuously growing market cap), now has stronger liquidity, requiring more capital to shake the price; 2) institutional investors have been able to trade IBIT options over the past 6 months..."

Options (derivative contracts used for hedging) play a key role in this. Call options provide asymmetric bullish exposure, while put options protect the underlying asset from downside risk. The demand for options affects implied volatility.

When institutional investors sell high-strike out-of-the-money calls against their spot positions, it puts downward pressure on implied volatility. This yield-generation strategy has become increasingly popular in the crypto market in recent years.

Kennelly added: "This shift in the spot-fluctuation correlation is driven by structural volatility sellers at the far end of the curve, particularly Bitcoin treasury vehicles, which have surged in recent months."

Market Makers and Miners: Important Links in Volatility Suppression Chain

Market makers and traders also contribute to the reduction of fluctuations. These entities typically maintain a delta-neutral exposure by balancing positions in the futures and spot markets.

Goyal explained in detail: Miners and institutions sell covered call options to generate additional income, which puts market makers in long vega exposure, meaning an increase in volatility is advantageous for them. To hedge back to a neutral position, market makers need to sell volatility (i.e., short vega), thereby suppressing implied volatility while prices rise.

"Long-term holders like miners often sell covered call options or similar income-enhancing structured products to earn returns. Dealers (market makers) take on these positions and ultimately hold long Vega risk. As spot prices rise, the long Vega risk accumulated by dealers will be longer; they manage this risk through hedging (selling volatility), which effectively puts downward pressure on implied volatility. This dynamic volatility supply from dealers can limit or even reverse the typical spot-volatility dynamic relationship, resulting in implied volatility remaining low even as spot prices rise."

Future Outlook: Steady Progress, but Beware of "Black Swans"

Looking ahead, this pattern of price rise accompanied by low Fluctuation may continue, supported by macroeconomic factors such as a weakening dollar and expectations of interest rate cuts. However, any unexpected events—such as sudden market panic—could lead to a sharp spike in Bitcoin's Fluctuation, just like in the stock market.

AWR Capital managing partner Philip Gillespie summarized: "The macro backdrop is favorable for risk assets, with a weaker dollar and rising asset prices. Minor pullbacks are minimized as buyers keep entering the market, leading to reduced volatility as Bitcoin approaches its historical highs. However, if any factors trigger a sudden change, volatility could surge dramatically."

He added that before that, the market seemed to be steadily moving along a slow and stable path, essentially a "slow-moving train" driven by macro trends rather than frenzied speculation.