Bitcoin’s Implied Volatility Compresses to Multi-Year Lows, Echoing Summer 2023 Patterns
Bitcoin (BTC) implied volatility has dropped to multi-year lows, setting up a scenario reminiscent of summer 2023, when subdued volatility preceded a sharp October rally.
After weeks of narrow trading between $110,000 and $120,000, the market has entered a calm phase, reducing expectations for near-term price swings. Volmex Finance’s BVIV index, which tracks 30-day implied volatility, has fallen to an annualized 38%, down from a short-lived spike to 41% in late August, and is approaching the two-year low of 36% seen four weeks ago.
Implied volatility, calculated from options pricing, represents the market’s expectation of future price movement over the year. At-the-money IV offers a normalized perspective on sentiment, often moving in line with realized volatility and broader market dynamics.
The current compression mirrors patterns from summer 2023, when IV dropped from roughly 50% to 35%. That period of low volatility lasted until October, after which bitcoin surged from a low near $25,000 to approximately $46,000 by year-end, coinciding with the approach of spot Bitcoin ETFs in early 2024.
This trend aligns with IV’s mean-reverting behavior: extended periods of low volatility are typically followed by sharp movements in either direction.
The latest compression suggests the market may be underpricing upcoming turbulence. Historically, October has been a key inflection point for bitcoin, and the fourth quarter has generally been its strongest, delivering average gains of around 85%.
