Bitcoin Volatility Expectations Drop as Market Panic Fades

According to Glassnode’s weekly Bitcoin options market update, a notable decline in volatility expectations is helping to subside the heightened bearish sentiment that has dominated recent trading. The key metric of At-the-money (ATM) implied volatility across various maturities has dropped significantly to around 48%, down from recent highs. This figure is crucial because ATM implied volatility reflects the market’s expected price movement; its decline suggests traders are no longer betting on an immediate, catastrophic price crash for Bitcoin.

This shift is reinforced by broader market indicators. The DVOL index, which measures aggregate implied volatility expectations, has fallen by roughly 10 volatility points over the past two weeks following initial spikes during the late January and early February market liquidation. Furthermore, the short-term volatility risk premium (VRP) has turned positive. Earlier this month, the one-week VRP plunged to deeply negative levels at -45, indicating that realized volatility was far exceeding what was implied by options prices. The subsequent repricing of implied volatility higher, coupled with stabilized realized volatility, has restored a premium in short-dated options. Together, these metrics from the Bitcoin options market signal that the panic pricing seen earlier is being reset, and expectations for outsized, volatile moves have declined.

Despite the cooling in volatility expectations, other data points reveal that Bitcoin traders are maintaining a cautious and defensive stance. The Put skew, which measures the relative demand for downside protection (puts) versus upside exposure (calls), remains elevated. After bottoming near 7 volatility points, the one-week 25-delta skew has rebounded toward 14 volatility points. This recovery indicates that while the extreme fear of an imminent crash has subsided, firm demand for downside insurance persists among market participants.

Taker flow data tells a similar story of defensive positioning. Puts represented a dominant two-thirds of last week’s options activity, with outright put buying alone accounting for about 34% of the total flow. This overwhelming preference for protective options strategies suggests that traders are not fully convinced the recent market correction has run its course. The options market, therefore, is signaling a more measured but still wary outlook: expectations for immediate turmoil have faded, yet traders continue to hedge actively against the risk of another leg down for Bitcoin.

The current market structure, as detailed by Glassnode, sets the stage for potential price amplification in either direction. Dealers—typically large institutions that facilitate trading by taking the other side of client trades—are broadly short gamma across a wide price range between $58,000 and $70,000. This positioning is significant because when dealers are short gamma, they are forced to buy when prices fall and sell when prices rise to hedge their exposure, which can accelerate market moves. In this case, if Bitcoin extends its losses and breaks below key support levels, this dealer positioning could amplify selling pressure.

Conversely, the data shows a large gamma concentration around the $75,000 price level. This suggests significant options positioning is in place betting on or protecting against a potential rebound to that area. At press time, Bitcoin was trading at $67,628, marking a 0.92% gain over 24 hours but remaining firmly in consolidation beneath the $70,000 resistance zone. The interplay between cooling volatility expectations, persistent defensive hedging, and dealer gamma exposure creates a fragile equilibrium. The market appears to be catching its breath after a period of stress, but the underlying positioning indicates that the next decisive move, whether upward toward $75,000 or downward through the $58,000-$70,000 gamma zone, could be sharply accelerated by the mechanics of the options market itself.