Volatility Recovery: How Wall Street Leverages Market Turmoil to Boost Year-End Bonuses

Since the approval of spot ETFs in 2024, Bitcoin was once considered to have entered the “taming era”—the influx of institutional investors seemed to make this once “wild asset” become more docile. However, the market performance over the past two months has shattered this assumption.

The “Sleeping” and “Awakening” of Volatility Indicators

Looking at historical data over the past five years, Bitcoin’s implied volatility (IV) has peaked at several key moments: a 156% historical high during the May 2021 mining crisis, 114% during the Luna/UST collapse (May 2022), and most recently, a large-scale fluctuation triggered by the FTX collapse (November 2022). Since the FTX incident, Bitcoin’s volatility has fallen into a “sleeping” state, failing to break above 80% for a period. Even during the ETF capital inflow in March 2024, it only approached this critical level.

This “calm” reflects a fundamental change in market structure. Since the launch of spot ETFs, the flow of institutional funds seems to have become central to pricing power, with phenomena like the decoupling of volatility from spot prices visible everywhere. But this situation is quietly reversing.

New Signals in Market Volatility

Entering early 2026, Bitcoin’s implied volatility index has shown a noticeable rise for the first time this year. According to the latest data, BTC’s current price is around $90.56K, while the options market is sending signals that differ from the price trend—even as the spot price declines, implied volatility continues to rise, which is extremely rare in the post-ETF era.

This divergence of “price falling but volatility rising” marks a turning point. The market seems to be reenacting the famous Gamma Squeeze of early 2021: Bitcoin soared from $20,000 to $40,000, with call skew even breaking +50%, triggering a fierce wave of options liquidations, ultimately pushing the price to new highs.

Wall Street’s “Year-End Feast” Strategy

Through options position data from the Deribit platform, a clear picture emerges: as of the end of November, among the top five open interest options contracts, those expiring on December 26 dominate. Specifically:

• $140,000 call options: $9.5 billion notional value
• $200,000 call options: $7.2 billion notional value
• $125,000 call options: $6.2 billion notional value

Behind these deeply out-of-the-money call options, lies a systemic bet by institutions on significant volatility before the year’s end.

The True Driving Force of the Volatility Machine

What is more worth pondering is that all this is not accidental. Historical data shows that the current two-year implied volatility structure closely resembles the configuration from February to March 2024—precisely when Bitcoin experienced a rapid rally driven by ETF capital.

The key difference is: Today, Wall Street not only needs ETF capital but also the market volatility itself. Under the incentive to maximize year-end bonuses, trend traders, hedge funds, and options market makers are all seeking profit opportunities driven by volatility. When volatility rises, their profit window opens.

Three Possible Futures

The market currently faces three diverging paths:

Scenario 1: If the spot price continues to decline but implied volatility remains high or even rises further, it will strongly suggest that a deep rebound is brewing. In this “sticky options” environment, buyers still hold the initiative.

Scenario 2: If selling pressure persists and volatility stagnates or falls back, the path out of the bear market will be significantly narrowed, especially if structural selling triggers negative chain reactions. At this point, the market is not looking for a rebound point but is gradually establishing a downtrend.

Scenario 3: Volatility continues to rise, the spot price breaks through key resistance levels, and a linkage between options and spot prices forms, ultimately leading to a new Gamma Squeeze.

The coming weeks are crucial for the direction of the Bitcoin market. Investors who understand the essence of volatility will hold the key to interpreting this game.