Bitcoin investors are always waiting for and excited by volatility but seldom enjoy it when a price pump is followed by a sharp correction that triggers forced liquidations in futures contracts and amplifies the downside price movement.
Bitcoin (BTC) futures play an essential role since traders can use leverage; thus, the larger this market becomes, the greater its price impact.
Bitcoin futures aggregate open interest, USD. Source: Coinglass
The aggregate Bitcoin futures open interest reached a $36 billion all-time high on March 21, up from $30 billion two weeks prior. Moreover, the market leader, the Chicago Mercantile Exchange (CME), achieved an $11.9 billion open interest, surpassing the inflow of United States spot Bitcoin exchange-traded funds (ETFs) since their inception.
Bitcoin’s volatility increased after the spot ETF launch in the U.S.
Despite the successful debut of spot ETFs, some analysts anticipated reduced volatility, given that these instruments trade over $3 billion per day on average. However, recent data indicates the opposite, as Bitcoin’s volatility has increased in the last four weeks.
Bitcoin/USD 30-day historical volatility. Source: TradingView
Bitcoin’s 30-day volatility surged above 80%, marking its highest level in over 15 months. For comparison, the S&P 500 index volatility stands at 13%, while WTI oil futures stand at 23%. Even stocks traditionally considered volatile in the traditional market, such as Nvidia and Unity Software, currently exhibit volatility of 72% and 59%, respectively.
Volatility examples in Bitcoin include a 10% correction on March 19, reaching a low of $60,795, followed by a 12% gain on March 20. This unforeseen price swing resulted in $375 million of forced liquidations in BTC futures contracts over two days. While this movement may not directly impact holders, it certainly influences the trajectory of the bull run and, more significantly, Bitcoin’s risk perception by the broader market.
The Bitcoin futures market, like any derivatives instrument, is a double-edged sword: It enables leveraged bullish and bearish bets. While entities aggressively shorting BTC…
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