The key indicators of bitcoin price show that the investor’s panic has dropped after halving

Bitcoin’s implied volatility drops sharply after halving, but what does this mean for Bitcoin investors?

The latest data from Skew shows that after halving yesterday, Bitcoin (BTC) ‘s implied volatility has dropped significantly. Usually, volatility is the core of all professional traders because it measures the average daily price fluctuations to gain insight into market conditions.

As Cointelegraph previously reported, the halving of BTC tends to increase volatility due to its huge uncertainty. Traders expect that the price of BTC will either skyrocket or fall during or after the halving, so there will be a surge in the short term. At the time of writing, this indicator has returned to its previous level.

Uncertainty leads to volatility
 
In the past few months, analysts have circulated the statement that after halving, BTC computing power may drop significantly. It is speculated that this may be caused by the miners shutting down the ASIC mining machine. The reason for the shutdown is that the BTC block reward has been reduced from the previous 12.5 BTC to 6.25 BTC.

So far, there are still reasons to worry about the “death spiral”, which will force large miners to sell mining machines, and may even bankrupt those miners with excessive leverage. One possible reason for this situation is that the income that is vital to miners has been cut.

Keep in mind that transaction fees rarely exceed 5% of the miner’s income, and the main component of the miner’s income is the BTC block reward. Cutting the mining and mining industry’s $ 5 billion in revenue by half may produce unexpected results, including a hard fork.

Traders rely on implied volatility, and halving affects this indicator.

 Also Read:https://www.asicminerstore.com/news/is-btc-still-solid-like-golden/

BTC ATM implied volatility Source: Skew

There are two ways to measure volatility, one is to use historical data, and the other is to analyze the current premium in the option market. It is worth noting that historical data has disadvantages when dealing with price-sensitive events, because it is conducive to past trends.

For Bitcoin, the volatility has continued to decline since Bitcoin reached its peak after falling sharply to $ 3,600 on March 12. In May, with the halving of Bitcoin approaching, the implied volatility of Bitcoin stabilized at around 80%.

The options market provides a perfect way to measure potential price fluctuations because they rely on traders’ “skin-in-the-game”. Option sellers demand higher premiums, reflecting their increased concerns about future volatility.

As shown in the figure below, ATM options mean that the unit of the strike price used for calculation is currency, which means that the current base price of BTC at $ 8900 is $ 9000.

Call option pricing Source: Deribit

These are the standards for measuring volatility because they have little intrinsic value. A call option with a strike price of $ 7000 has an intrinsic value of $ 1900, because the transaction price of Bitcoin is much higher than this level.

How traders explain the decline in implied volatility
 
The peak implied volatility means that the premium in the options market has soared. This should be interpreted as the market charging higher fees for insurance, both for call options and put options.

If the market goes up, the basic strategy of buying call options can provide protection. Through the prepaid premium, people can get BTC at a predetermined price. The opposite situation applies to put option buyers who purchase insurance in case the price drops suddenly.

One thing to note is that changes in volatility are neither bullish nor bearish. Unusually high levels reflect uncertainty and should prompt traders to ensure that stop-loss orders are in place and deposit large amounts of margin for leveraged trading.

Low volatility does not mean low risk
 
Some traders tend to infer that a low volatility situation means that the risk of an unexpected fall is low. Please be assured that there is no such indicator. People should use this period to establish insurance positions through the options market.

On the other hand, if traders are caught off guard by high volatility, they should close all positions to avoid unnecessary stop-loss execution, or be prepared for leveraged traders to be liquidated during sharp changes.

For more information on how to understand the complexity of the cryptocurrency market, please refer to 10 tips to ensure that your cryptocurrency portfolio remains profitable during the crisis.

That’s the today’s daily news.

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