Market Volatility Hits Highest Level Since COVID Crash

The cryptocurrency market reacted swiftly to the global economic downturn over the weekend, with predictions of continued instability.

Bohan Jiang, Head of OTC Options Trading at Abra, noted that volatility in the crypto space is expected to remain high until broader economic conditions improve.

Recent market behavior caught many off guard, as traders had not been preparing for a downturn. Before the market shift, there was a strong focus on bullish trends, with Bitcoin and Ethereum showing increased implied volatility in anticipation of major events like Trump’s Bitcoin speech and the launch of Ethereum ETFs.

The recent economic turmoil has led to a sharp rise in the CBOE Volatility Index (VIX), which surged to over 65 points, its highest since the early COVID-19 market panic and second highest after the 2008 crisis.

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This spike reflects the surprise and disruption within the derivatives market, where volatility had been aggressively sold off following market events.

Bob Wallden from Abra pointed out that the cryptocurrency market was slow to adapt to the changing macroeconomic conditions, remaining skewed towards positive movements with insufficient downside hedging. This has resulted in a significant drop in Bitcoin and Ethereum funding rates, marking a sharp decline in profitability for market trades.

The current market turmoil is linked to multiple factors, including a surge in the Japanese yen, disappointing U.S. jobs data, concerns about the Federal Reserve’s ability to manage the economy, and the deflating AI bubble. The yen’s rise has particularly contributed to increased volatility as traders unwind carry trades.

Bitfinex analysts suggest that the crypto sell-off is driven by these macroeconomic issues, with potential support expected around $48,900. Without a shift towards bullish momentum, this support level may face further tests depending on the macroeconomic landscape.

Alexander Stefanov