Bitcoin and S&P 500 Year-End Bull Run Loading? Vol Metrics Say Yes

Volatility metrics tied to bitcoin BTC$91,325.01 and the S&P 500 have cooled flashing green signal for a synchronized year-end bull run amid surging Fed rate cut odds.

Volmex's options-based 30-day bitcoin implied volatility index, BVIV, dropped back to an annualized 51%, reversing a sharp spike to nearly 65% over five days leading to Nov. 21, when bitcoin's price plunged from around $96,000 to nearly $80,000.

Other volatility indicators, such as Deribit's DVOL, show similar spike and drop patterns, consistent with volatility swings on Wall Street.

The VIX index, which measures the 30-day implied volatility in the S&P 500 , surged to 28% during the week leading up to Nov. 21 and has since eased back to 17%.

The recent reversal in volatility trends suggests that panic is fading and bulls are regaining control, driving the price action higher. In other words, the path of least resistance appears to be upward as the final month of the year approaches.

Bitcoin has recovered to over $91,000 since last Friday, continuing an inverse relationship with its volatility index. This shift to a negative correlation, seen since late last year, signals BTC’s evolution toward behaving more like a traditional asset.

Liquidity addiction

The volatility decline tracks surging odds for a December Fed rate cut, reigniting risk appetite and curbing demand for bitcoin put options as downside protection. This highlights markets' deep dependence on lower borrowing cost or cheap money.

"Markets are balancing on a knife’s edge, but sentiment has stabilised meaningfully as expectations of a rate cut continue to recover. The probability of a 25 basis point cut at the upcoming FOMC meeting collapsed to 39% just a week ago, yet has since surged back to nearly 87%," Dr. Sean Dawson, head of research at leading on-chain options platform, Derive, told CoinDesk.

"Volatility is cooling as well," Dawson added, explaining that the drop in volatility and unwinding of the strong put bias seen last week suggests that markets are pricing a lower probability of near-term disorder.

On both Deribit and Derive, the renewed dovish shift in Fed rate cut bets has eased demand for BTC puts. As of writing, one-week and one-month call-put skews stand at around -5%, up from -7% to -10% last week.

"Traders are still paying a premium for downside protection, but noticeably less than last week, reflecting reduced fear and a partial unwind of defensive hedging as rate-cut odds firm," Dawson said.