Just as a tense bow string pulled tightly releases energy in a sudden powerful snap, bitcoin (BTC) seems to be building energy for wild price swings in October, mirroring a pattern from 2023.

The crypto market has been boring lately, with bitcoin trading back and forth between $110,000 and $120,000. That has dented volatility expectations. For instance, Volmex FInance’s BVIV index, which measures the 30-day implied volatility (IV), has dropped to an annualized 38%, reversing the brief spike to 41% in late August. The index appears on track to test the two-year low of 36% reached four weeks ago.

Implied volatility represents the market’s expectation of future volatility. It is derived from option pricing and reflects the one standard deviation range of expected price movement of the underlying asset over the course of a year. Tracking at-the-money (ATM) IV over time provides a normalized view of market expectations, which tends to move in line with realized volatility and broader market sentiment.

The latest trend in the IV mirrors a setup from the summer of 2023, when IV fell sharply from around 50 to 35. In that period, IV stayed compressed until October and bitcoin bottomed out around $25,000 before rallying to about $46,000 by the end of year, just ahead of the launch of spot Bitcoin ETFs in early 2024.

The pattern was consistent with IV’s mean-reverting nature. In other words, volatility tends to rise after a prolonged period of lull and peaks following a big move in either direction.

The latest volatility compression suggests the market is underpricing future price turbulence. If history is any guide, October could once again be the inflection point, where IV surges as bitcoin experiences a significant price move, possibly bullish. That’s because, Historically, the fourth quarter has been bitcoin’s strongest quarter, delivering an average gain of around 85%.