Nvidia becoming more volatile than Bitcoin and Ether
|-
NVDA's 30-day implied volatility has surpassed Bitcoin and ether's gauge.
-
Bitcoin has exhibited a strong positive correlation with NVDA since late 2022.
Nasdaq-listed Nvidia (NVDA), hailed by Goldman Sachs as the world's most important stock this year, is expected to see more significant price swings than crypto market leaders bitcoin and ether.
NVDA's 30-day options implied volatility, a gauge of anticipated price swings over four weeks, has recently surged from an annualized 48% to 71%, according to data source Fintel.
Meanwhile, crypto exchange Deribit's bitcoin DVOL index, a measure of 30-day implied volatility, has declined from 68% to 49%, according to charting platform TradingView. The ETH DVOL index has dropped from 70% to 55%.
Options are derivative contracts that protect the buyer from bullish and bearish price swings. The implied volatility, influenced by demand for options, represents the degree of uncertainty or expected price turbulence.
NVDA, a bellwether for all things artificial intelligence (AI) and the producer of graphics processing units formerly used for cryptocurrency mining, has emerged as a barometer of sentiment for both equity and crypto markets since the debut of ChatGPT in late 2022.
Both Bitcoin and NVDA bottomed out in late 2022 and have since exhibited a strong positive correlation. As of writing, the correlation between 90-day prices on Bitcoin and NVDA was 0.73.
NVDA's stock is down roughly 26% since reaching a high of $140 last month, offering bearish cues to the crypto market. Bitcoin has been locked in the range of $60,000 to $70,000, CoinDesk data show.
The spike in NVDA's implied volatility is likely related to the hedging activity of market makers, a phenomenon often seen in the crypto market, according to the crypto financial platform BloFin.
"It must be admitted that negative gamma does not only dominate the crypto market. In the U.S. stock market, SPY and QQQ have experienced significant declines caused by negative gamma hedging, and the high volatility risk has made NVDA's front-month implied volatility level significantly surpass that of cryptocurrencies such as BTC and ETH," Griffin Ardern, head of options trading and research at crypto financial platform BloFin, told CoinDesk.
Negative or short gamma means market makers trade in the direction of the price moves to maintain their overall exposure direction-neutral, inadvertently adding to market volatility.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.