Nvidia’s Rising Volatility Outpaces Bitcoin and Ether

Nvidia’s Dominance in Market Volatility

Nasdaq-listed Nvidia (NVDA) has been recognized by Goldman Sachs as one of the most pivotal stocks in the current financial landscape. It is now anticipated to experience more pronounced price fluctuations compared to leading cryptocurrencies such as bitcoin and ether. Recent data from Fintel indicates that NVDA’s 30-day options implied volatility—a metric that gauges expected price movements over the next month—has surged from an annualized 48% to an astonishing 71%.

In contrast, the implied volatility for bitcoin, as measured by the DVOL index from the crypto exchange Deribit, has declined from 68% to 49%. Similarly, the ETH DVOL index has dropped from 70% to 55%. Options, which are derivative contracts, provide a safeguard for buyers against significant price movements in either direction. The fluctuations in implied volatility reflect market sentiment and the degree of uncertainty surrounding price movements.

Nvidia, a leading player in artificial intelligence (AI) technology and a manufacturer of graphics processing units (GPUs) that were previously utilized for cryptocurrency mining, has become a key indicator of sentiment across both equity and crypto markets. This trend has been particularly pronounced since the launch of ChatGPT in late 2022. Notably, both bitcoin and NVDA reached their respective lows in late 2022 and have since demonstrated a robust positive correlation, with a correlation coefficient of 0.73 based on 90-day price movements.

Despite this correlation, NVDA’s stock has experienced a decline of about 26% since peaking at $140 last month. This downturn is sending bearish signals to the broader cryptocurrency market, as bitcoin has been trading within a range of $60,000 to $70,000, according to data from CoinDesk.

The recent spike in NVDA’s implied volatility can likely be attributed to the hedging activities of market makers, a behavior commonly observed in the cryptocurrency sector. Griffin Ardern, the head of options trading and research at the crypto financial platform BloFin, noted that “it must be acknowledged that negative gamma is not exclusive to the crypto market. In the U.S. stock market, instruments like SPY and QQQ have seen significant drops due to negative gamma hedging. The heightened volatility risk has led NVDA’s front-month implied volatility to exceed that of cryptocurrencies such as BTC and ETH.”

Negative or short gamma trading indicates that market makers adjust their positions in response to price movements to maintain a neutral exposure, which can unintentionally amplify market volatility.