"Bitcoin stabilizes after plunging to $60,000… enters a 'volatility reset' phase"

Bitcoin has stabilized in the $60,000 range after a sharp short-term selloff, as analysis suggests the market has entered a “volatility reset” phase. While liquidity continues to drain, fear in the options market appears to be easing somewhat.

On the 19th (local time), Matrixport said as much in its weekly report, “Matrix On Target.” Bitcoin recently plunged from around $85,000 to near $60,000, before showing signs of stabilization around the $66,000 level.

In the process, implied volatility for Bitcoin options expiring in March this year surged in a short period from the 40% range to as high as 65%. Implied volatility is an indicator that quantifies the market’s expectations for the magnitude of future price swings; the higher it is, the more investors are anticipating large price movements.

As Bitcoin’s price tumbled, investors bought large amounts of insurance-like options to hedge against further declines, driving the volatility reading sharply higher. As the market subsequently regained some stability, implied volatility fell back to around 50%, suggesting that excessive fear has eased to some extent.

The report said, “The cryptoasset (cryptocurrency) market is nearing an important inflection point,” adding that “volatility remains elevated and investor sentiment is stuck at extremely depressed levels.” It continued, “At the same time, market liquidity continues to flow out,” and added that “traders appear to be gradually scaling back hedge positions established during the prior breakdown phase.”

Position sizes and market participation have also declined markedly. “Historically, this combination has often appeared ahead of a major directional move,” the report said.

It also noted that while the macro backdrop is showing some signs of improvement, cryptoasset prices have not fully reflected it. “The gap between macro variables and cryptoasset prices persists, and such decoupling is difficult to sustain over the long term,” it said.