- Bitfinex analysts are expecting volatility to spike in crypto markets.
- A change in the Federal Reserve’s outlook on federal funding rates may be partially responsible.
Volatility could soon be in the cards for crypto markets.
Activity in the options markets foreshadowed moves in crypto this week, according to a report from crypto exchange Bitfinex.
“Potential price swings in Bitcoin became evident when implied volatility exceeded historical volatility,” Bitfinex said. This is often a “reliable indicator that traders are expecting much higher volatility in the near future.”
The report pointed out that options implied volatility is currently at 36.4%, while the historical volatility figure is at 27.1%.
Bitcoin, meanwhile, is up 3.5% to $28,000 over the past 24 hours, and has increased 6.4% over the last seven days.
“Historically, a positive September ushers in a bullish October and the volatility as well as the futures market metrics all point towards increased volatility.”
— Bitfinex analysts
“Crucially, we’ve closed September in the green, a rare occurrence,” wrote Bitfinex analysts. “Historically, a positive September ushers in a bullish October and the volatility as well as the futures market metrics all point towards increased volatility.”
However, the report expressed concern over the ongoing United Auto Workers strike, the resumption of student loan repayments, heightened energy costs, and high interest rates, suggesting that these factors could “collude to hamper spending and economic growth in the upcoming months.”
A shift from the Fed
The Federal Reserve opted to pause interest rate increases last month, leaving them at a target range between 5.25% and 5.50%.
The Fed also made a “significant and unusually large” shift in its interest rate outlook, noted Mohamed El-Erian, chief economic advisor at PIMCO’s parent company Allianz and president of Queen’s College Oxford.
The policymaker’s median projected interest rate levels jumped to 5.1% in September from 4.6% in June — suggesting the possibility of two ratecuts next year is off the table.
Coinbase research said ahead of the Fed meeting that volatility in Bitcoin and equities would likely increase due to higher-than-expected inflation data.
The prospect of higher volatility has been reflected in stock market performances lately. The VIX, which is a measure of the expected volatility and investor sentiment, moved higher on Monday, up above 18 from below 16 on Friday.
The popular index tracks the S&P 500 and rises when there is uncertainty or fear in the financial markets — investors refer to it as the “fear gauge.”
Adam Morgan McCarthy is DL News’ London-based Markets Correspondent. Got a tip? Reach out at adam@dlnews.com
Thomas Carreras is a Markets Correspondent at DL News. He is based in Costa Rica. You can reach him at tcarreras@dlnews.com