Research Summary
The report provides a comprehensive analysis of the crypto derivatives market for the third week of January 2024. It focuses on the trends in implied volatility, futures prices, and options for Bitcoin (BTC) and Ethereum (ETH), following the announcement of the ETF event.
Key Takeaways
Downward Trend in Implied Volatility
- Post-ETF Announcement Impact: The report highlights a decisive downward trend in implied volatility following the resolution of the ETF announcement event risk. This has led to the resolution of the volatility term structure, pushing 1-week tenor options to their highest levels since November 2022.
ETH Futures Prices Remain Elevated
- Expectations of Follow-on ETF Approval: ETH futures prices remain strongly elevated above the ETH spot price. This is due to traders’ expectations of a follow-on ETF approval for ETH, indicating a willingness to pay for leveraged long exposure.
Steady BTC Futures Prices
- Resolute Yields: The yields implied by BTC futures prices remain steady at 10% across the term structure, in contrast to the elevated ETH futures prices.
Options Trends for BTC and ETH
- Lower BTC Implied Volatility: The report notes a drift lower in BTC’s ATM implied volatility across the term structure, resolving the inversion seen the previous week.
- Downward ETH Implied Volatility: ETH’s ATM implied volatility also follows a downward trajectory post-ETF, despite the dominant ETH rotation narrative.
Volatility Surface Cooling
- Surface-wide Cooling: Both BTC and ETH report a surface-wide cooling in implied volatility. The 1W tenor for BTC is closer to its 30-day historical average than other tenors, while the cooling on ETH’s surface is less extreme at longer-dated tenors.
Actionable Insights
- Monitor Implied Volatility Trends: The downward trend in implied volatility for both BTC and ETH post-ETF announcement suggests a potential stabilization in the market. Investors should keep a close eye on these trends as they could impact future investment strategies.
- Assess ETH Futures Prices: The elevated ETH futures prices indicate strong market expectations for a follow-on ETF approval. This could present opportunities for investors willing to pay for leveraged long exposure.
- Consider BTC Futures Prices: The steady yields implied by BTC futures prices could suggest a more stable investment opportunity compared to ETH, particularly for risk-averse investors.
