Why Bitcoin Volatility Remains Sticky While S&P 500's VIX Reverses October 10 Surge

Bitcoin’s BTC$89,294.73 key volatility index remains elevated even as the S&P 500 VIX index, Wall Street's primary fear gauge, has eased from its surge following the Oct. 10 market shakeup.

Observers attribute the stickiness in BTC volatility to factors including concerns around auto-deleveraging and poor market liquidity.

The Oct. 10 vol spike and stickiness in BTC

The Oct. 10 market panic, triggered by President Donald Trump's tariffs announcement on China, led to broad-based risk aversion, sending both stocks and cryptocurrencies lower.

On the same day, BTC's price fell to roughly $104,000 from $122,000 and its annualized 30-day implied of expected volatility (IV), represented by Volmex Finance's BVIV index, surged from 40% to 60%.

The index has since stabilized above 50%, maintaining elevated levels compared to the VIX index, which has fallen back below 20%, erasing the spike to 29%. The VIX represents the 30-day implied volatility in the S&P 500.

ADL risks

The divergence is due to traders pricing new risks in the crypto market, according to Yoann Turpin, co-founder of the crypto market-making firm Wintermute.

"Bitcoin volatility was subdued earlier, characterized by regular premium selling as market participants, particularly digital asset treasuries (DATs), sought to generate yield and differentiate their strategies. It has now become clear that new risks and market dynamics—such as ADL (auto-deleveraging)—were underestimated and are now being fully priced in," Turpin told CoinDesk.

Auto-deleveraging (ADL), often the final step in the liquidation process, is triggered when an exchange’s insurance funds and liquidation procedures prove insufficient to cover losses from bankrupt positions. In such cases, the system automatically reduces or closes profitable opposing positions to maintain platform solvency, effectively socializing losses during market stress.

During the Oct. 10 crash, several exchanges, including decentralized giant Hyperliquid, activated ADL to force-close leveraged short bets.

In essence, the crash etched ADL risks, previously largely unknown or underestimated, firmly into investors' psyche, likely reflected in sticky implied volatility.

That said, Turpin expects volatility to remain elevated at current levels only if BTC rallies to new highs or new lows outside of the $100,000-$125,000 range.

Liquidity issues

Liquidity in the cryptocurrency market refers to the ease with which digital assets can be bought or sold without causing significant changes to the market price. When liquidity is high, even large buy or sell orders can be absorbed without drastically impacting prices, which helps keep the market stable and reduces volatility. Conversely, when liquidity dries up, smaller orders can have an outsized impact on market rates, often leading to increased volatility.

The market panic on Oct 10, partly catalyzed by the breakdown in infrastructure at Binance, the world's leading crypto exchange by volume, has affected market liquidity, setting the stage for a new high volatility regime.

"Although the macro fears that initially triggered the spike have eased, realized volatility has continued to climb, keeping IV supported. This could be a shift into a higher-volatility regime rather than a temporary shock," Jimmy Yang, co-founder of institutional liquidity provider Orbit Markets, said.

"With many spot liquidity providers hurt during the recent crash, market depth has thinned, leaving prices more prone to large swings," he explained.

Griffin Ardern, head of BloFin Research and Options, blamed tightening fiat liquidity conditions in offshore (non-U.S. markets) regions for elevated BTC volatility.

"The Hong Kong dollar's overnight lending rate (HIBOR) has returned to its pre-May level, while the DXY has actually risen since October, even during a period of interest rate cuts. This is a clear sign of tight liquidity, which often triggers volatility," Ardern said. "BTC's volatility is largely determined by the offshore market.