Crypto Volatility Collapse and the Implied-versus-Realized Volatility Gap
Summary
The article compares Bitcoin and Ethereum volatility with equity volatility during 2022. It defines delivered volatility as a rolling 30-day standard deviation of log returns and describes how crypto volatility had generally moved alongside the S&P 500 earlier in the year. From mid-September, equities became more volatile while BTC and ETH remained range-bound, pushing crypto’s delivered volatility well below its earlier relationship with equities. The article also reports low at-the-money implied volatility and compares BTC implied volatility with both the VIX and BTC delivered volatility.
The authors interpret the gaps as unusually low option pricing relative to the historical relationships shown in their charts. They outline two possible explanations: crypto volatility could reconnect with broader risk markets, lifting implied volatility, or crypto could become less sensitive to macro conditions. They view the first case as a potential repricing and the second as a bullish spot-price signal. These are conditional interpretations, not a tested trading strategy; the analysis is based on historical correlations and observations through October 2022, which may not persist.
Key ideas
- Delivered volatility is measured using the rolling 30-day standard deviation of log returns.
- BTC and ETH volatility had generally tracked S&P 500 volatility earlier in 2022.
- From mid-September, crypto volatility stayed low while equity volatility rose.
- BTC implied volatility appeared low relative to both the VIX and BTC delivered volatility.
- The article presents renewed macro correlation or crypto decoupling as competing explanations for the volatility gap.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.