Crypto Volatility Dips Before Powell's Jackson Hole Speech
Markets Await Powell Amidst Volatility Drop
A sense of calm has settled across various asset classes as traders anticipate Federal Reserve (Fed) Chairman Jerome Powell's speech at the Jackson Hole Symposium (Aug 21-23). This anticipation is reflected in the significantly reduced volatility observed in major markets.
Crypto Volatility Near Two-Year Lows
Bitcoin's (BTC) 30-day implied volatility, as indicated by Volmex's BVIV and Deribit's DVOL index, has experienced a sharp decline in recent months. TradingView data shows it hovering near two-year lows of around 36% last week.
Gold and Treasury Volatility Also Declining
The CME Gold Volatility Index (GVZ), measuring the expected 30-day volatility of the SPDR Gold Shares ETF (GLD), has more than halved in the past four months, reaching 15.22%—its lowest level since January.
The MOVE index, tracking the 30-day implied volatility of Treasury notes, has also decreased, hitting a 3.5-year low of 76.
The VIX, often called Wall Street’s “fear gauge,” fell below 14% last week, a considerable drop from its early April highs near 45%. Similar volatility compression is evident in FX majors like EUR/USD.
Rate Cut Expectations and Market Sentiment
The widespread decline in volatility across major assets arises as central banks, particularly the Fed, are anticipated to initiate rate cuts from restrictive levels.
Endgame Macro noted on X that most major economies aren't easing from ultra-low levels but from restrictive territory. Rates remain high enough to slow growth. Real rates, adjusted for inflation, are often positive. This differs significantly from past easing cycles.
The CME's FedWatch tool indicates expectations for a 25 basis point rate cut in September, resuming the easing cycle after an eight-month pause. JPMorgan forecasts the benchmark borrowing cost to decrease to 3.25%-3.5% by the end of Q1 2026, a 100-basis-point reduction from the current 4.25%.
Some observers suggest Powell's Jackson Hole speech could set the stage for new easing measures.
Angelo Kourkafas from Edward Jones stated that the path to rate cuts might be uneven, but the direction of travel for rates is likely to remain lower. He added that with inflation treading water and labor-market strains becoming more pronounced, the balance of risks may soon tip toward action. Chair Powell’s upcoming remarks at Jackson Hole could validate high expectations for rate cuts resuming in September.
In essence, the decline in volatility may reflect expectations for easy monetary policy and economic stability. Investors seeking to analyze their portfolios may benefit from Codeum's consulting services for robust risk assessment and comprehensive security audits.
Complacency Concerns and Potential Risks
However, contrarian views suggest that the market may be overly complacent. President Trump's trade tariffs threaten economic growth, and recent data indicates persistent inflation.
Asset prices, including BTC and gold, are at record highs.
Scott Bauer of Prosper Trading Academy argued that volatility is too low given recent economic data and upcoming uncertainties.
Corporate bond spreads have reached their lowest levels since 2007, prompting Goldman Sachs analysts to advise clients to hedge against potential risks.
Goldman strategists, led by Lotfi Karoui, warned that downside risks warrant portfolio hedges. Growth could surprise to the downside, dis-inflationary pressures might fade, or renewed concerns over Fed independence could trigger a sharp selloff in long-dated yields.
Volatility is generally mean-reverting, implying that low volatility periods often precede more turbulent conditions.