Low Volatility Doesn't Equal Low Risk in Cryptocurrency Markets

Bitcoin's price has been steady, but don't be fooled - low volatility doesn't necessarily mean low risk. The 30-day implied volatility of Bitcoin (BTC.CC) has dropped to a long-held floor of 36%, which might make it seem like a safe bet.

However, experts warn that low volatility can lead to increased risk. When trading becomes cheap due to low volatility, traders build large directional bets and hedging positions, leaving market makers with significant exposure.

This can accelerate price swings if the market then starts moving. 'When volatility is cheap, traders can build directional positions and hedges at relatively low cost,' said Adam Haeems, head of asset management at Tesseract Group.

Currently, Bitcoin remains choppy below $65,000, with some green shoots. According to Paul Howard, a senior director at market-making firm Wincent, demand for puts has weakened, and there is a lack of strong bids for upside exposure.

This asymmetry could indicate that the bear market is close to trading at its lowest price range for this cycle. A potential catalyst for change could be positive regulatory news, such as the Clarity Act, which would likely manifest as institutional ETF inflows.