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The correlation between Nvidia stock and Bitcoin has been remarkably strong since both bottomed out in late 2022.
The crypto market, often criticized for its wild volatility, now seems more stable than Nvidia Corp (NASDAQ: NVDA) stock. This surprising shift in market dynamics has caught the attention of analysts and investors alike.
Nvidia, a leading AI chipmaker, has lately seen a notable increase in its 30-day options implied volatility, an indicator of expected price changes over the next month. Data from Fintel shows this volatility metric jumped from 48% on July 23 to 71% on July 30.
In contrast, the crypto market has shown a decline in volatility. Deribit’s Bitcoin DVOL index, which measures 30-day implied volatility, dropped from 68% to 49%. On the other hand, Ethereum’s ETH DVOL index fell from 70% to 55%.
Notably, implied volatility reflects the market’s expectations for price turbulence and is influenced by the demand for options.
Nvidia’s Role in the Crypto Sector
Nvidia has become an important stock, not just for its role in the artificial intelligence (AI) revolution but also due to its significance in the crypto mining sector. Its expertise in graphics processing unit (GPU) technology provides advanced mining solutions to the industry.
On July 29, Nvidia’s founder and CEO, Jensen Huang, emphasized the transformative impact of AI on society and industry. Huang stated that AI is also promising gains in energy efficiency through accelerated computing. He stated:
“Everybody will have an AI assistant. Every single company, every single job within the company, will have AI assistance.”
Earlier this year, Goldman Sachs dubbed NVDA “the most important stock on planet earth” due to its substantial influence on equity gains in 2024. Since the advent of ChatGPT in late 2022, Nvidia’s stock has served as a bellwether for both equity and crypto markets.
The correlation between Nvidia stock and Bitcoin has been remarkably strong since both bottomed out in late 2022. Currently, the 90-day price correlation stands at 0.71.
NVDA Stock Volatility
Despite its prominent position, NVDA stock has faced a sharp downturn, falling over 25% from its peak of $140 last month. This decline marks its worst monthly performance in nearly two years, approaching the largest monthly drop since September 2022. Notably, NVDA has recorded only six down months since then. In comparison, bitcoin is trading around $66,000, showing relative stability amid the turbulence in Nvidia’s stock.
The spike in NVDA’s implied volatility is largely attributed to the hedging activities of market makers. This involves market makers trading in the direction of price moves to maintain a neutral exposure, inadvertently increasing market volatility.
Griffin Ardern, head of options trading and research at BloFin, a crypto financial platform, noted that this dynamic has pushed NVDA’s front-month implied volatility levels much higher than those of major cryptocurrencies like bitcoin and ether.
