Volatility Review February 2025

Key Insights

• While crypto volatility in February 2025 was bookended by two incredibly choppy periods, the middle of the month saw BTC trade with a realized volatility level of just 29%. This level has marked the floor of BTC’s realized volatility over the past 18 months, with reversions to the mean occurring shortly after.
• Despite a significant drop-off in volatility expectations when the market digested the details of US president Donald Trump’s plan for a strategic crypto-asset stockpile, volatility expectations have once again rallied for short-dated options. This has resulted in a return to the inverted term structure of volatility that BTC and ETH options had traded with at the end of February.

• Crypto markets have continued to act as leading indicators, particularly through volatile weekend moves that consistently foreshadow broader risk-off events in traditional markets at the start of the week. While February saw a glimpse of idiosyncratic factors that could cause crypto-assets to move independently of US equities, macroeconomic headwinds proved too strong for the correlation to break just yet.

Despite explosive bookends, February saw volatility collapse

An otherwise quiet February was bookended by two macro-inspired explosions higher in crypto volatility. The month began with serious price action across risk-on assets, as President Trump initiated his long-awaited program of tariffs on neighboring countries Canada and Mexico, with a weekend announcement that saw a sharp and sudden correction from post-election highs. Those assets that had survived the climb higher of longer-dated yields at the beginning of the year at least saw a sharp and deep correction that has continued well into March 2025.

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This move was a repeat of several other macro-inspired weekend sell-offs, in which crypto signaled a broader de-risking ahead of the traditional finance market open, which we covered in depth in last month’s volatility review. However, a lull in the middle of February 2025 belied what was to come.

The month ended with a bang as macroeconomic factors once again drove crypto assets, this time in tandem with idiosyncratic crypto factors. Alongside a sell-off in equities that has now seen the S&P 500 Index trade as much as 8.6% below its Feb 19, 2025 all-time high (ATH), BTC revisited prices below $80K once again as ETH gave up all of its gains since the US election on Nov 5, 2024. 

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However, despite both the beginning and end of February seeing crypto assets trade with their highest levels of realized volatility since before the election, the middle of the month was, in contrast, far more subdued. As a result of the slow, sideways movements in spot, realized volatility fell to its lowest level since before the same date — levels not even seen since the quieter pre-election cycle period of June 2024.

BTC’s realized volatility (of hourly returns with a 7-day long lookback window) fell to just 29%, a level at which it has been supported since before the launch of US Bitcoin Spot ETFs in January 2024, nearly 18 months ago. Over that period, 29% realized volatility (on an annualized basis) has marked the floor for volatility, and has precipitated an increase in volatility soon after.

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That fall in realized volatility inspired a sell-off in front-end implied volatility expectations in the middle of the month. BTC’s 7-day constant tenor implied volatility level dropped as low as 36% — not quite as low as realized volatility, as markets continue to price in a premium to forward-looking volatility expectations, but low enough to hit the same floor marked when realized volatility hit its own floor.

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Taken alone, this wouldn’t be so surprising. Among all crypto assets (excepting stablecoins, of course), BTC ranks at the lower end of the volatility range. Like other asset classes, crypto has had (and will continue to have) its lower volatility regimes. However, the sharp drop in volatility (both realized and implied) came during a lull between key developments in the unfolding US tariff plans, perhaps highlighting the current off-guard unraveling of risk appetite across markets.

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We can see this in the chart below, which shows the price action of BTC near to each event in the following list of key tariff developments.

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• Jan 30, 2025: Trump announces he will impose 25% tariffs on Canada and Mexico.
• Feb 3, 2025: Trump agrees to delay tariffs of 25% against Mexico.
  
  • Then, on Feb 3, 2025, 9PM UTC, Canada’s Prime Minister Justin Trudeau announces Trump will pause tariffs with Canada for 30 days until March 2025.
• Feb 10, 2025: Trump announces tariffs on steel and aluminum, effective Mar 12, 2025 on all countries.
• Feb 26, 2025: Trump adds to uncertainty by being unclear on whether tariffs would be implemented from April 2025, or whether he’s halting them. He also announces a 25% tariff on the EU (without clarifying on which products).
• Feb 27, 2025: Trump confirms that the 25% tariffs on Canada and Mexico are in effect from Mar 4, 2025, and reciprocal tariffs would be in addition to the 5% figure.
• Mar 7, 2025: In a U-turn, Trump signs another EO on tariffs on Canada and Mexico, as long as the goods are protected under USMCA.

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Crypto is becoming less volatile, but has still got it when it counts

Over its full history, cryptocurrency has systematically become less and less volatile as time has passed. This pattern of declining volatility is clear over the long term, as market infrastructure has improved and liquidity has deepened. We indicate this in the chart below, which shows the realized volatility of BTC’s spot price across each month since 2014. The far darker colors representing 2023, 2024 and 2025 (so far) highlight BTC’s consistently falling average volatility over time. Among these dates, July 2023 stands out as a particularly quiet period, having preceded the wave of excitement sparked by ETF speculation in autumn of the same year.

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One striking observation from this data is that there’s no obvious seasonality to BTC’s volatility at this scale. Unlike traditional assets, which may display predictable patterns over different times of the year, BTC exhibits neither consistent volatility shifts over the months of a single year, nor across the years in its traditional four-year cycle. 

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However, as we’ve noted in prior research, crypto markets do exhibit distinct seasonality at a much smaller scale — specifically, throughout the week. Volatility tends to peak during Western open market hours, when institutional and retail traders alike are more active. 

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Conversely, BTC typically experiences significantly lower levels of volatility over the weekend, when trading volumes drop and market participation wanes (with some exceptions during major macroeconomic events or unexpected market catalysts).

February 2025 doesn’t register as a particularly low month for average volatility levels — even though BTC moves at one point with a realized volatility level as low as just 29%. This raises an important question: Why does February’s volatility not appear notably low among its peers? The answer lies in the timing and structure of price movements, particularly the two extreme bouts of volatility that bookend the month, which lifts the average significantly. These sharp market moves create a statistical impact that distorts the perception of February’s volatility as compared to other recent months.

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The increase in volatility begins in the last week of February and extends well into March. Calculated across several lookback windows, realized volatility rises strongly over the last two weeks. This means that the increase in volatility isn’t transitory, but instead represents a significant and persistent increase in uncertainty as markets grapple with the developing tariff story and subsequent impact on risk-on sentiment.

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While spot prices would later see a momentary reprieve from the fall from their ATHs, crypto’s return to volatile weekend moves precipitating larger sell-offs in equities and other risk-on assets on Monday morning continued on Feb 22 and Feb 23, 2025 — and hasn’t looked back since. 

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Is the volatility over?

Macroeconomic factors weren’t the only thing driving crypto asset prices at the end of February 2025. While under the shadow of uncertainty that Trump’s tariff policies (alongside brewing expectations of worsening economic conditions in the US) cast over risk-on assets, crypto prices were driven by clarification of Trump’s executive order mandating the US to create a strategic stockpile of digital assets, including BTC, ETH, XRP, SOL and ADA.

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The next week, On Mar 6, 2025, ahead of the much-anticipated White House Crypto Summit, the White House released a fact sheet that clarified the details of Trump’s Truth Social post from the previous weekend. Despite much speculation to the contrary, the US’s planned crypto strategic reverse wouldn’t be constructed from the new purchase of crypto assets, so as to “impose no incremental costs on American taxpayers.” Instead, the strategic stockpile of assets would be created from crypto assets already acquired by the US government via forfeiture in criminal or civil asset proceedings.

The news disappointed those who had expected the announcement of the strategic reserve would signal a governmental demand for crypto assets, and brought about a swift drop in the level of volatility implied by options with short-dated expirations that had built up ahead of Friday’s summit. This can be seen in the following chart, which shows the volatility implied by several constant tenors, and the rally in short tenor volatility that persisted from the lows on Feb 22, 2025, to the release of the White House’s fact sheet on Mar 6, 2025.

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Three key snapshots of the term structure of volatility are plotted in the term structure graph below. The snapshot from the height of the pre-summit expectations was around 75% (annualized), ahead of the announcement on Mar 6, 2025.

ETH’s volatility market behaved similarly, albeit with the same caveats that ETH markets have required for almost all of the post-election price action. Over the same period, ETH’s term structure had been far more willing to invert in response to moves in spot price than BTC’s, and retained a 10-20 volatility point premium over BTC options at equivalent tenors throughout. 

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However, despite implied volatility falling by nearly 20 points at the front end in the two days that followed the pre-summit, both BTC and ETH’s term structures remained ominously flat — as options markets weren’t yet ready to price in a return to the falling volatility regime that had dominated much of the middle part of February 2025. Instead, the persistently high level of realized volatility kept short-dated expectations high throughout the weekend.

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The following return to Sunday’s pre-Monday morning volatility validated the decision by volatility market participants, as short-tenor volatility expectations rose once again. While it’s too early to tell whether this is a stubborn return to the regime that preceded the run-up to Friday’s crypto summit, the latest move does mark yet another slide in spot that has inspired one more inversion of the term structure.

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BTC spot is now trading below $80K once again, and ETH is trading as low as $1.9K — a level not seen since November 2023. Repeating the spot performance chart from above shows that, among all those assets tapped for inclusion into a strategic stockpile, ETH is a significant underperformer in a period of already dismal performance among crypto assets. ETH’s higher volatility expectations have been repeatedly validated by its deeper sell-off, and option markets continue to price in more extreme movements. 

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Conclusion

Despite crypto volatility falling to historically low levels during the middle of February 2025, explosive movements at both ends of the month illustrate that crypto remains sensitive to both macroeconomic and policy-driven catalysts. February began and ended with pronounced volatility spikes driven by uncertainty around Trump’s trade policies, as well as broader risk-off sentiment, overshadowing an otherwise subdued middle period that saw BTC volatility fall as low as 29%. This low marked the bottom of a volatility range that has consistently prompted reversals higher.

Volatility expectations have returned to the height of the pre–crypto summit expectations, expectations that were ultimately disappointed by the announcement of no plans for new crypto asset purchases by the US government. This time, however, the movements in volatility markets reflect a deepening sell-off across risk-on assets that has seen the S&P 500 index fall more than 8.5% below its mid-February 2025 ATH. At the same time, crypto is deepening its correction alongside major macroeconomic releases, during the weekend while traditional markets are closed, and also during usual Monday to Friday trading hours.