Bitcoin's Wall Street-like fear gauge has spiked to its highest level since the collapse of the FTX exchange in 2022, signaling intense market panic as prices plummeted to nearly $60,000.

Volmex's bitcoin volatility index (BVIV), which represents the annualized expected price turbulence over four weeks, jumped to nearly 100% from 56% on Thursday.

The index serves as a crypto equivalent to Cboe's VIX, the so-called fear/panic gauge, which indicates the 30-day implied volatility of the S&P 500 and rises during market panics as traders bid up options prices to hedge against declines in the index.

The BVIV does the same more often than not, rising during market panics as observed on Thursday.

"A wave of panic swept through crypto markets this week, correlated to a sharp risk-off move across various asset classes. Bitcoin’s 30-day implied volatility, as measured by the BVIV Index, surged from just over 40 to 95 in a matter of days, levels not seen since the infamous collapse of FTX at the end of 2022," Cole Kennelly, founder and CEO of Volmex Labs, told CoinDesk in a Telegram chat.

Implied volatility is influenced by demand for options, or derivative contracts that help traders make asymmetrical gains from uptrends in the underlying asset and hedge downside risks. Call options are used to bet on the upside, while put options are typically bought as insurance against price drops.

On Thursday, traders scrambled to buy Deribit-listed options, especially puts, as bitcoin's price tanked from $70,000 to nearly $60,000. The top five most traded options of the past 24 hours are all puts at strikes ranging from $70,000 to $20,000, according to data source Deribit Metrics. The $20,000 put represents a bet that prices will fall below that level.

"Volatility markets reacted sharply to last night's price drop. Front-end volatility surged as dealers adjusted for gamma [near-term risks]. Short-dated vols led the surge, showing higher demand for protection, while longer-dated vols lagged, keeping the volatility curve steeply inverted," Jimmy Yang, co-founder of institutional liquidity provider Orbit Markets, told CoinDesk.

Yang's clients rushed to buy downside protection, fearing the price crash could devastate digital asset treasuries that bought bitcoin at higher levels. These firms could now liquidate at a loss, leading to a deeper slide in bitcoin's price.

"With significant uncertainty still ahead — particularly around the DATs and the risk of further unwind cascades, we've seen a lot of client demand for downside protection," he added.

Bitcoin's price has bounced to over $64,000 at the time of writing, an over 5% recovery from overnight lows, according to CoinDesk data. Yang expects volatility to stabilize.

"Sentiment is deep in extreme fear, but bitcoin's price seems to have found a base near $60K. If price action stabilizes, volatility looks stretched and could quickly pull back," he said.