Crypto Derivatives Market Pulse

Quick Takes: Spot – Volatility Dynamics

• Bitcoin (BTC) has surged past $63K, gaining c. 10% in a week, while Ethereum (ETH) lags behind with a c.4% increase. The recent 50bps rate cut by the Federal Reserve signals potential positive momentum for BTC, especially if further cuts occur in a non-recessionary context.
• Following the recent rate cut, BTC's short-term volatility dropped by roughly 5% for 1-week and 2% for 1-month options. The longer-term curve saw a slight decline but remained relatively flat. ETH exhibited a similar pattern, though with a milder decrease, reflecting its comparatively higher risk profile.
• Week-over-week, implied volatility has decreased by an average of 3% for BTC and 2% for ETH. However, ETH options continue to trade at a volatility premium over BTC across all maturities.
• The derivatives market is largely focused on the upcoming U.S. election, with a significant volatility premium priced into BTC options expiring in late 2024 and early 2025. This reflects heightened perceived risk, driven by BTC’s historically reactive behavior to recent election-related developments.
• BTC ETF inflows have been net positive, totaling $450M over the past week, contributing to the recent price surge, despite a $50M outflow yesterday. In contrast, ETH has struggled with net outflows of $53M, recording just one positive day of $1.5M in the last week.

Volatility

BTC ATM Implied Volatility:

Short-dated volatility saw a sharper decline, while long-tenor option volatility remains steady with a slight downward trend. Upside potential is limited by increased option selling activity on longer-dated expires.

BTC 25 Delta Call-Put Skew:

Short-dated options still favor puts, but the skew is decreasing, with call-put skew trending upward following recent market shifts. Overall, the skew reflects a moderately risk-off sentiment in the short term, while mid- to long-term sentiment remains mildly bullish as long-dated skew has stayed relatively stable.

BTC Term Structure:

Option markets are positioning around the November 5th election date, evident in the term structure of at-the-money implied volatility. A distinct kink has appeared in the term structure leading up to the 2024 election, with higher volatility premiums priced into options expiring after the election compared to those before.

ETH ATM Implied Volatility:

ETH's at-the-money implied volatility has mirrored BTC’s trend, with the sharpest decrease seen in front-end expiries up to one month (-3 percentage points on average). Longer-dated vols remain above 68%, though they face downward pressure from increased call selling activity.

ETH 25 Delta Call-Put Skew:

The short-term outlook is improving as skew trends upwards. 6 month 25 Delta Calls now offer a 3.5 percentage point implied volatility premium over puts, up from 2.7 percentage points last week. This shift indicates growing market optimism regarding ETH’s price performance into 2025.

ETH Term Structure:

The term structure for ETH mirrors BTC, showing a distinct kink around November 8 expiries. Overall, ETH at-the-money volatility continue to trade at a 9%-10% premium over BTC across the curve.

Author: Carlo Accolla

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