Bitcoin Volatility Hits Two-Year Low Amid Bullish Option Selling

Bitcoin's implied volatility has reached its lowest point in nearly two years, according to data from Deribit's Bitcoin Volatility Index. This index measures the 30-day forward-looking annualized price volatility expectation, signaling a notable change in the trading behavior of the largest cryptocurrency. Over the past two months, Bitcoin has experienced relatively stable price movements, fluctuating within a narrow range of $93,000 to $111,000. This stability contrasts sharply with the cryptocurrency's historically volatile price trends.

Market analysts have identified several factors contributing to the decrease in volatility. One key factor is the increased bullish option selling activities by Bitcoin holders. This strategy involves generating income by selling options, which has effectively dampened price volatility. Currently, approximately 80% of Bitcoin options open interest is concentrated in the $100,000 to $120,000 strike price range, creating a natural price cushion zone. Despite the low volatility, the Bitcoin perpetual contract funding rate remains positive, indicating that the market sentiment remains bullish.

David Lawant, Head of Research at FalconX, highlighted that the strategy of selling bullish options to generate income has been a significant factor in reducing price volatility. The concentration of options open interest in the $100,000 to $120,000 range further supports this trend, as it acts as a buffer against extreme price movements. The positive funding rate for Bitcoin perpetual contracts suggests that traders are still optimistic about the cryptocurrency's future performance, despite the recent period of low volatility.