Bitcoin’s Short-Term Realized Volatility Falls to 16% Following April Surge

In April, the volatility curve for Bitcoin experienced a notable shift. Realized volatility reflects the actual daily fluctuations in Bitcoin’s price over a defined period, contrasting it with market expectations. Represented as the annualized standard deviation of daily logarithmic returns, it captures the intensity of trading activity. This metric aids analysts in evaluating option prices against observed price movements, identifying shifts in market regimes earlier than prevailing price trends, and assessing whether implied premiums or leverage conditions seem excessive.

The one-week realized volatility reached 94% on April 12, marking its highest level since January 10, 2023. This increase coincided with an intraday drop of $3,124 to $82,747, concluding at $85,270. Just eight days later, this metric plummeted to 16% as the price stabilized around $85,000 after a modest $1,479 range. Since October 2022, only one faster weekly contraction of 50 points has been recorded.

Interest surged again on April 23, with Bitcoin rising by $2,785 intraday and closing at $93,715, which pushed the one-week realized volatility back up to 54%. According to order-book snapshots, open interest at the $95,000 call strike on Deribit skyrocketed to 13,000 contracts from 3,920 earlier that day, infusing an additional $160 million in notional value, marking the largest one-day increase since the introduction of spot ETFs in January. The put-call ratio for the front month dropped to 0.41, indicating that traders were more focused on seizing upside potential rather than hedging their positions.

The two-week realized volatility gradually decreased: from 71% on April 12 to 59% on April 20, 54% on April 23, and finally 40% on April 30. In contrast, both the one-month and three-month realized volatilities remained stable at 56%, while the six-month realized reached 54%. This stable medium-term profile suggests that daily fluctuations subside quickly, although traders with extended timelines continue to price in moves of mid-50% volatility.

A short leg of 16% against approximately 55% one-month implied volatility allows dealers to earn around 0.8 points of theta daily. With realized volatility this low, gamma risk is minimal, enabling market makers to hedge by selling spot during rallies. Typically, upside momentum halts unless a new catalyst necessitates rebalancing, which briefly occurred on April 23 with a spike in ETF creations.

The price dynamics in the last week of April showcase the carry trade. From April 25 to 30, Bitcoin’s intraday range averaged roughly $1,900, while the one-week realized volatility remained at 16% and the one-month implied stood at 55%. Funding on Binance averaged 0.0066% every eight hours compared to 0.039% on April 12. Additionally, liquidations dropped to $78 million on April 30 from $485 million earlier in the month.

The six-month realized volatility at 54%, matching the figure from January 1, indicates that the market braces for significant fluctuations leading up to the Federal Reserve’s summer meetings and the upcoming US election. April thus reflects a market inclined to ascend amid steady ETF demand yet quick to reduce activity when the momentum subsides.

Volatility surges tend to manifest in brief bursts linked to substantial cash inflows and diminish quicker than in 2024. This trend is conducive to carry strategies, but it also creates latent risks: the longer the one-week volatility hovers around 15%, the more intense the reversion may be when the next shift occurs.