- Fed’s rate hike pause causes significant volatility in the crypto market, leading to new price lows.
- Realized volatility outpaces implied volatility, with short-term VRPs showing inversion.
- Low levels of implied volatility and VRP inversions indicate a potential prolonged period of reduced market volatility.
The crypto market experienced a wave of volatility as the Federal Reserve announced a pause in rate hikes, triggering new price lows and raising concerns among investors. The market witnessed a significant decline, with major cryptocurrencies plunging to levels not seen since the March Big Miracle Day.
One notable observation during this period of volatility is the widening gap between realized volatility and implied volatility. Despite the increased market turbulence, implied volatility levels have failed to rise in line with the heightened price fluctuations. Short-term volatility risk premiums (VRPs) have even turned inverted, signaling an unusual market behavior.
The inversion of VRPs has a pronounced effect on implied volatility (IV). Coupled with the fact that IV is currently at historic lows, it becomes challenging to foresee a significant decline in IV in the near term. This suggests that the market may continue to experience reduced volatility for an extended period.
In the midst of this volatility, a prominent whale executed a block trade of $100 million, temporarily resulting in a floating loss. However, historical data reveals that this whale has consistently achieved profitability within a few weeks following their operations. As a result, many market participants are closely monitoring their subsequent activities for potential insights.
As the crypto market navigates the uncertainties brought about by the Fed’s rate hike pause, investors are advised to remain cautious and consider the various scenarios that may unfold. Staying informed and vigilant will be crucial to managing investments in this ever-evolving crypto landscape.
