Wall Street is counting on Bitcoin's high volatility to pay year-end bonuses.

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This article is from: Jeff Park, Bitwise Advisor

Compiled by: Moni, Odaily Planet Daily

In just six short weeks, Bitcoin's market value has evaporated by $500 billion, with ETF fund outflows, Coinbase discounts, structural sell-offs, and poorly positioned long positions being liquidated, while there are no obvious catalysts to stimulate a market rebound. Moreover, the ongoing concerns of whale sell-offs, heavily loss-making market makers, a lack of defensive liquidity supply, and the survival threat posed by the quantum crisis continue to hinder Bitcoin's potential for a rapid recovery. However, throughout this decline, one question has persistently troubled the community: What exactly has happened to Bitcoin's volatility?

In fact, the volatility mechanism of Bitcoin has quietly undergone a transformation.

In the past two years, it has been widely believed that ETFs have “tamed” Bitcoin, curbing its volatility and transforming this asset, which was once highly sensitive to macroeconomic factors, into a trading tool regulated by institutions and constrained by mechanisms to suppress volatility. However, if you focus on the past 60 days, you will find that this is not the case; the market seems to have returned to its previous state of volatility.

Looking back at the implied volatility of Bitcoin over the past five years, it can be observed that the peaks of this indicator are traceable:

The first peak (also the highest peak) occurred in May 2021, when the implied volatility surged to 156% due to the crackdown on Bitcoin mining.

The second peak occurred in May 2022, triggered by the collapse of Luna/UST, reaching a peak of 114%;

The third peak occurred from June to July 2022, when 3AC was liquidated;

The fourth peak occurred in November 2022, when FTX collapsed.

Since then, the volatility of Bitcoin has never exceeded 80%. The closest it came to 80% was in March 2024, when the spot Bitcoin ETF experienced three months of continuous inflows.

When observing the Bitcoin volatility index (vol-of-vol index), clearer patterns can be discerned (this index is essentially the second derivative of volatility, or a reflection of the speed at which volatility itself changes). Historical data shows that the highest value of the Bitcoin volatility index occurred during the FTX collapse, when the index soared to around 230. However, since the beginning of 2024, when the ETF received regulatory approval for listing, the Bitcoin volatility index has never exceeded 100, and implied volatility has continued to decline, unrelated to the spot price trends. In other words, Bitcoin seems to no longer exhibit the hallmark high volatility behavior characteristic of the market structure before the ETF launch.

However, the situation has changed in the past 60 days, with Bitcoin's volatility experiencing its first increase since 2025.

Refer to the above image and note the color gradient (light blue to dark blue represents “a few days ago”). Tracking the recent trend, you will notice a brief window period where the spot Bitcoin volatility index rose to around 125, while implied volatility was also increasing. At that time, the Bitcoin volatility indicator seemed to suggest a potential market breakout, as previously the volatility was positively correlated with the spot price. However, contrary to expectations, everyone knows now that the market did not rise as anticipated, but instead reversed and fell.

Interestingly, even as spot prices fall, implied volatility (IV) continues to rise. It is rare for the price of Bitcoin to continue falling while implied volatility has been on the rise since the advent of ETFs. It can be said that this stage may represent another significant “turning point” in Bitcoin's volatility pattern, where implied volatility returns to the state it was in before the emergence of ETFs.

To better understand this trend, we use a skew chart for further analysis. During significant market downturns, the skew of put options typically rises sharply — as seen in the three major events mentioned earlier, the skew reached -25%.

But the most noteworthy data point is not the skew during the market downturn, but rather in January 2021, when the skew of call options peaked above +50%. At that time, Bitcoin experienced the last true mega-gamma squeeze in recent years: the price of Bitcoin soared from $20,000 to $40,000, breaking through the historical high of 2017, triggering an influx of trend followers, CTAs, and momentum funds, and resulting in an explosive increase in actual volatility. Traders were forced to buy spot/futures to hedge the gamma risk of their short positions, which in turn pushed prices higher—this was also when Deribit saw record retail inflows for the first time, as traders discovered the power of out-of-the-money call options.

Analysis shows that observing changes in options positions is very important. After all, it is the options positions - not just spot trading - that create the decisive movements driving Bitcoin prices to new highs.

As the trend “turning point” of Bitcoin's volatility reappears, it suggests that prices may once again be driven by options. If this shift continues, the next wave of Bitcoin's rally will not only come from ETF inflows but also from a volatile market (with more investors entering to seek profits in the fluctuations), as the market finally recognizes Bitcoin's true potential.

As of November 22, 2025, the top five trades by nominal amount of open contracts in USD on the Deribit platform are as follows:

1. A put option with a strike price of $85,000, expiring on December 26, 2025, with an open contract size of $1 billion.

2. A call option expiring on December 26, 2025, with a notional value of $140,000 and an open interest of $950 million;

3. A call option expiring on December 26, 2025, with a value of $200,000 and an open interest of $720 million.

4. A put option expiring on November 28, 2025, with a notional value of $80,000 and an open interest of $660 million.

5. A call option with a maturity date of December 26, 2025, with a notional value of $125,000 and an open contract size of $620 million.

In addition, as of November 26, the top ten options positions of BlackRock IBIT are as follows:

It can be seen that the demand for options allocation before the end of the year (calculated by nominal value) is greater than the demand for options allocation (calculated by nominal value), and the strike price range of the options is more biased towards out-of-the-money options.

If we further observe the chart of Bitcoin's implied volatility over the past two years, we will find that the persistent demand for volatility over the past two months closely resembles the similar trend on the chart during February to March 2024. Many should remember that this was the period of skyrocketing driven by Bitcoin ETF fund flows. In other words, Wall Street needs Bitcoin to maintain high volatility to attract more investors into the market because Wall Street is a trend-based industry, and they like to maximize profits before year-end bonus payouts.

Volatility is like a self-driven machine powered by profit.

Of course, it is still too early to assert whether volatility has formed a breakthrough trend and whether ETF fund flows will follow, meaning that spot prices may continue to decline. However, if spot prices continue to fall from their current position while implied volatility (IV) rises during this period, it would more strongly indicate that prices may experience a significant rebound, especially in an environment where traders still tend to lean towards long options, known as a “sticky options” environment. But if the sell-off continues and volatility stagnates or even declines, the path out of the downtrend will be significantly narrowed, particularly in the context of recent structural sell-offs triggering a series of negative external effects. In this case, the market is less about finding a rebound point and more about gradually forming a potential bear market trend.

The next few weeks will be very interesting.

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