A new indicator called the volatility risk premium (VRP) is indicating a period of low volatility in the market. The VRP measures the difference between an asset’s implied volatility, which is the market’s expectation of price turbulence, and its realized volatility over time. It represents the additional premium demanded by options sellers to compensate for the risks associated with uncertainty and price volatility.
Data from Bitfinex’s analysts shows that the one-month VRP has plummeted from 15% to 2.5% since the Bitcoin (BTC) blockchain’s mining reward halving on April 20. The calculation is based on the gap between Volmex’s bitcoin 30-day implied volatility index (BVIV) and one-month realized volatility (VBRV).
According to analysts at Bitfinex, the significant narrowing of the VRP suggests a shift in market expectations towards a more stable and predictable environment after the halving. It indicates that future volatility might be lower than previously anticipated.
This decrease in uncertainty is leading market participants to anticipate more predictable conditions. BTC’s one-month VRP has experienced sharp declines, indicating a more stable market following the halving. This development is seen as positive news for long-term investors. Bitcoin is currently trading around $62,588, relatively unchanged since the halving, after recovering from recent lows near $56,500.