Karla Barker 
Bitcoin’s fear gauge spikes to highest level since FTX collapse
Bitcoin’s volatility index, which measures expected price turbulence over the next month, jumped to nearly 100% on Thursday. That’s the highest reading since the FTX exchange collapsed in late 2022. The index had been sitting at around 56% just before the spike.
This metric works like the stock market’s VIX index – it rises when traders get nervous and start buying options for protection. When people are scared about where prices might go next, they’re willing to pay more for insurance against big moves. That drives up implied volatility readings.
Options trading shows widespread fear
Looking at the actual trading activity, it’s clear why the index jumped. Traders scrambled to buy put options as bitcoin’s price fell from $70,000 to nearly $60,000. Put options give the right to sell at a specific price, so they’re essentially insurance against further declines.
The five most traded options in the past day were all puts with strike prices ranging from $70,000 down to $20,000. That $20,000 put option is particularly telling – someone’s betting bitcoin could fall that far, though perhaps that’s more about extreme hedging than actual expectation.
Cole Kennelly from Volmex Labs noted that the surge happened quickly, with the index moving from just over 40 to 95 in a matter of days. He connected it to a broader “risk-off” move across different asset classes, not just crypto.
Why the sudden panic?
Jimmy Yang from Orbit Markets pointed out that short-term volatility led the surge while longer-term measures lagged behind. This created what traders call an “inverted” volatility curve, where near-term protection costs more than longer-term protection.
His clients were particularly worried about digital asset treasuries that bought bitcoin at higher prices. If those firms face margin calls or need to liquidate positions, it could create a cascade of selling pressure. That fear drove demand for downside protection.
There’s also uncertainty around what Yang called “DATs” – I’m assuming he means digital asset treasuries or something similar – and the risk of further unwinding. When leveraged positions get forced to close, it can create a feedback loop of selling.
Some stabilization appears
Interestingly, bitcoin has already bounced back somewhat from the lows. At the time of writing, it’s trading above $64,000, which represents about a 5% recovery from the overnight bottom near $60,000.
Yang thinks volatility might stabilize if price action calms down. He noted that sentiment is “deep in extreme fear” but bitcoin seems to have found some support around $60,000. If that holds, the stretched volatility readings could pull back quickly.
It’s worth remembering that volatility works both ways – high readings don’t necessarily mean prices will keep falling. They just mean the market expects big moves in either direction. Sometimes these spikes mark turning points rather than continuation patterns.
Still, seeing levels not reached since the FTX collapse is significant. That event wiped out multiple firms and created a liquidity crisis across crypto markets. The fact that current readings match that period suggests traders are preparing for similarly turbulent conditions.
Whether that preparation proves necessary remains to be seen. Markets have a way of surprising everyone, and sometimes the biggest fear comes right before a recovery. But for now, options traders are clearly paying up for protection, and that tells us something about current market psychology.