Cryptocurrency has seen an unprecedented rise in adoption over the past few years, with Bitcoin leading the charge. The evidence of this success has been seen in the emergence of a derivatives market, with leading crypto options trader Deribit introducing their forward-looking bitcoin volatility index (DVOL) this year. This index is remarkably similar to the VIX index used to gauge equity market fear, though its value has developed a positive correlation with the crypto's price instead of rising during periods of risk aversion. This difference means that call options are especially attractive, as they stand to benefit from both favorable direction and an increased implied volatility.

Both Daryl Magadini and Spencer Hallarn noted the positive spot/implied volatility regime that has emerged since January, as well as the double benefits this provides call buyers when the market is sharply rising. This is in contrast to the panic buying of put options that occurred during the market downturn of 2022, when the DVOL spiked on major price drops.

The powerful rally of bitcoin over the last 3 months appears to defy market expectations of a continued decline, showing instead a renewed appetite for the cryptocurrency. Investors have been entering the market en masse, with Paradigm reporting a noticeable rise in topside trades via options. This could lead to even more fear of missing out, and an increased demand for trading options. This in turn could push the DVOL even higher. With the benefits this provides to call option buyers, now may be the ideal time to activate a bullish trading strategy.



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