Nvidia (NVDA) Stock Becoming More Volatile Than Bitcoin (BTC) and Ether (ETH)

Bitcoin has exhibited a strong positive correlation with NVDA since late 2022.

Nasdaq-listed Nvidia (NVDA) is set to experience more significant price swings than crypto market leaders bitcoin and ether, according to a recent analysis of options markets.

NVDA's 30-day options implied volatility, a gauge of anticipated price swings over four weeks, has recently shot up from an annualized 48% to 71%, Fintel data showed.

In contrast, crypto exchange Deribit's bitcoin DVOL index, a measure of 30-day implied volatility, has declined to 49% from 68% earlier this year, according to charting platform TradingView. The ETH DVOL index has dropped to 55% from 70%.

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 (GPUs) formerly used for crypto 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 Friday, the correlation between 90-day prices on bitcoin and NVDA was 0.73.

Hence, market participants could be closely watching NVDA's price action for directional cues in the crypto market.

However, the recent downturn in NVDA's stock price, which is down roughly 26% since reaching a high of $140 last month, could be offering bearish cues to the crypto market. Bitcoin has been largely 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, the analysis noted.

"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.