“When volatility is cheap, traders can build directional positions and hedges at relatively low cost. If the market then moves through a level with concentrated positioning, dealer hedging can accelerate the move,” Adam Haeems, head of asset management at Tesseract Group, which manages $500 million in client assets, said in an email.
“The practical implication is that low volatility should not be mistaken for low risk. It is a reason to be careful with leverage, particularly when trading volumes and market depth are subdued.”
For now, BTC remains choppy below $65,000 with some green shoots.
According to Paul Howard, a senior director at market-making firm Wincent, demand for puts, or downside protection, has weakened. At the same time, there is a lack of strong bids for upside exposure.
“It indicates that the bear market is close to trading at its lowest price range for this cycle, arguably over the coming weeks,” he said in an email.
“The asymmetry is not a bid for puts; it is the disappearance of the call bid. Nobody is paying for upside, and nobody is paying much for downside,” Glassnode said.
According to Howard, the next big catalyst would be “some positive regulatory news such as with the Clarity Act, which would likely manifest as institutional ETF inflows.”