The correlation between bitcoin and its implied volatility has turned negative again, indicating investor concerns about moves to the downside. The 60-day trailing correlation between bitcoin's price and implied volatility flipped negative a week ago and fell to -0.29 early Tuesday.
A decrease in price alongside an increase in implied volatility indicates a bias for put options, or derivative contracts offering protection against price slides. The negative correlation stems from expectations of FTX selling off its crypto holdings.
Griffin Ardern, a volatility trader from crypto asset management firm Blofin, said concerns of additional monetary tightening in global markets are also behind the shift in the volatility trend.
"The impending U.S. August CPI data will likely show a rebound in inflation, which means the Fed will probably take additional liquidity-tightening measures to curb reflation. In liquidity redistribution, crypto assets are prioritized last, which means that the liquidity stored in crypto assets could be withdrawn and invested in assets such as cash or U.S. stocks," Ardern said.
"That has pushed up investors' preference for puts, bringing a negative correlation between prices and volatility."
EmoticonEmoticon