The first ten days of 2023 have remained stubbornly flat in BTC. In this report, we have highlighted that the stable state of BTC in isolation is reflected in a tranquil derivatives market and supported by lower trading activity in BTC. In sum, these observations point towards a dampened speculative demand in BTC, as already noted in our previous market updates.

The first ten days of 2023 have remained stubbornly flat in BTC. In this report, we have highlighted that the stable state of BTC in isolation is reflected in a tranquil derivatives market and supported by lower trading activity in BTC. In sum, these observations point towards a dampened speculative demand in BTC, as already noted in our previous market updates.

The flat and directionless pattern in BTC is typical during bear markets. BTC’s 30-day volatility currently sits at lows not seen since June 2020. While BTC is flat, BTC’s 30-day volatility has reached lower lows in 2013, 2015, 2016, 2018, 2019, and 2020. BTC is currently more stable than gold, the dollar strength index, Nasdaq, and the S&P 500 gauged through 5-day volatility. In table 1, we illustrate previous occurrences of BTC’s 5-day volatility simultaneously falling below all the aforementioned indexes, defined as “relative volatility compression” in BTC. Per the table, this is highly unusual, and the current relative volatility compression environment has already lasted for a record-long duration.

Table explanation: BTC 5-day volatility below NDQ, S&P 500, DXY, and Gold This table illustrates all previous occurrences of BTC’s 5-day volatility falling below that of Nasdaq, S&P 500, DXY, and Gold simultaneously. Per the table, this is a highly unusual event. The current relative volatility compression in BTC compared to other equities has reached a record-long duration. High volatility has tended to follow previous incidents of relative volatility compression in BTC. *BTC return 30 days after the first date of the volatility compression period.

Apart from the September 29 observation of last year, all other relative volatility compression events have been followed by volatile days with sharp bounces or frantic markets in the following 30 days.

Attractive straddle environment

Alongside the declining volatility, options IVs have fallen towards all-time lows across a set of different expiries. For instance, the IV of 1mth, 3mth, and 6mth expiries sit at all-time lows.

Thus, straddle strategies are getting increasingly more appealing. Based on previous price patterns following declining BTC volatility, toppled with BTC’s current relative volatility compression versus other equities, we believe this is a good time to utilize cheap options premiums to position for abrupt market moves.