Volatility Transmission to Bitcoin: The Role of VIX Term Structure and Crypto Options Markets

Abstract

This study investigates the impact of cryptocurrency implied volatility and the CBOE VIX term structure on Bitcoin returns from March 2021 to May 2025. Using PCA and an orthogonalization framework, we identify the VIX term structure’s slope factor as a primary determinant of contemporaneous Bitcoin returns. While Bitcoin shows strong negative responses to VIX and crypto-implied volatility across all maturities, the VIX slope factor exhibits superior explanatory power. Notably, following the January 2024 U.S. spot Bitcoin ETF approval, Bitcoin's sensitivity to its own implied volatility significantly attenuated, while its responsiveness to the VIX remained unchanged. A placebo test confirms this structural shift, suggesting that ETF institutionalization has altered Bitcoin’s internal risk dynamics without decoupling it from broader equity market volatility.